Popular American TV series such as Succession, The Bear and Arrested Development have given a mass audience insight into the challenges, albeit satirical and dramatized, associated with family businesses. In real life, like on those shows, disagreements over business decisions can certainly spill into personal life, significantly affecting family relationships.
Family-run businesses are the backbone of America’s economy, making up one-third of S&P 500 companies. Of the some 5.5 million family-run small businesses in the United States, 53% share management responsibilities with a spouse.
This Small Business Month, here are three big pieces of advice for entrepreneurial couples. Effective business management with a loved one often comes down to prioritizing strong communication, financial literacy and succession planning.
Communication Is King
While family-owned businesses’ impact on the economy is apparent, the businesses aren’t guaranteed to last. The reasons for this are many, some of which can be attributed to a lack of communication.
This skill will come in handy throughout the business’s growth, especially when defining key roles and responsibilities. For example, when they originally founded what is now known as the Estée Lauder Companies, the legendary Estée led “creativity, product development and sales,” while Joseph headed “finance and operations.”
Like the Lauders, play to your strengths and take ownership of the tasks that align well with them. Estée is one of the most celebrated woman founders of our time. Joseph’s and Estée’s clearly defined roles in the company allowed Estée’s brilliant vision to shine.
Other best practices include having mediation protocols in place for when a conflict arises to keep disagreements professionally focused, only discussing business needs during working hours to keep personal dynamics separate and dedicating time off work to spend with loved ones outside of the office.
Financial Literacy Is A Business Advantage
While I just mentioned partners establishing swim lanes, it doesn’t mean that either partner should stop developing their financial literacy. Being financially literate will make you a better businessperson and partner. It will help provide context around any financial instability you may face as a couple as you build the business.
Business couples often need to work harder to secure diverse sources of input, including professional advisors, board members and continuing education. It’s easy to rely too much on your spouse for perspective. It’s important you both have a strong understanding of business operations to avoid conflict around the management of finances.
This can include inventory, cost of sales, working capital, accounts payable, revenue projections and more. Is the business growth strategy keeping pace with customer demands and competitive forces? Is there sufficient capital to fund current operations and propel future growth? Ensure your financial literacy is sharp enough to understand how these factors affect your bottom line.
Lastly, don’t forget to be sensitive. Roughly half of U.S. adults are not financially literate, meaning one spouse may not be as up-to-snuff as the other. This can create friction around financial discussions because spouses are not starting from equal-knowledge playing fields. Always explain your reasoning in the context of the business—never make it personal. Over time, work with your partner and others in the business to elevate their financial literacy. This will only make you all stronger.
Create A Legacy That Endures
Statistically, just 30% of family businesses survive the transition from first-generation to second-generation ownership and only 12% survive the second-generation to third-generation transition.
To ensure the longevity of the business, entrepreneurs should map out what will happen to the company when they are no longer at the helm. My colleague Bobby Stover, EY Americas Family Enterprise and Family Office Leader, often writes how a generational transition strategy should be at the heart of a family business alongside a system of governance the family can use to operate the business. This should happen sooner rather than later as you must be prepared for the unexpected.
Take for example the core plots of the TV shows mentioned above, The Bear and Succession. In these shows, a sudden death or serious sickness puts in motion significant changes that create rifts within the family because there was no succession plan. This forced family members into leadership roles before they were ready to do so, damaging family connections, their own well-being and the future of the company.
While these are dramatizations, the core points are spot on. You need to be prepared for what the future of the business looks like when other members of the family take over.
As families get bigger and further away from the generation that created the wealth, very clear responsibilities, skills and roles within the company matter. Without this clarity, unqualified people can start to run the business, affecting the growth and capitalization strategies.
Starting a business with a loved one has many advantages, such as partnering with someone whom you trust, and who has your same priorities and your best interests at heart. The challenges are often unique and do need to be managed. However, when done right, family businesses can be a competitive powerhouse in the market today, and a legacy to leave the next generation tomorrow.
