Every type of business comes with its own set of challenges, and family businesses are no exception. Just because you're working with family doesn't mean you won't face any obstacles. Differences in opinion, financial issues, and disagreements over profit sharing can still arise.
If you’re planning to run a business with your family, it’s essential first to understand the potential challenges you may encounter. This way, you can prepare for them and handle them effectively. Here are some common challengesoften faced by family businesses:
The Challenges in Family Businesses
1. Informal Culture and Structure in Running the Business
Illustration of Structure in a Business. Image: freepik.com/jannoon028
Some business owners may think having a relaxed culture is a positive thing. However, it’s important to realize that running a family business with a structure and culture that’s too informal can actually lead to poor documentation, weak policies, and vague strategies and goals.
Solution:
Implement a formal structure: Many family businesses tend to have a relaxed culture, which makes it essential to establish a clear organizational structure, including a proper division of roles and responsibilities.
Document policies and procedures: Create formal documents that govern the business operations, including Standard Operating Procedures (SOPs) and internal policies, to serve as guidelines for all employees.
Evaluate and revise regularly: Conduct periodic reviews of the policies and organizational structure to ensure they remain relevant and effective. The review schedule should align with the company’s growth and business development.
With a laid-back and informal culture, it’s often difficult to say no to family members who want to join the business. However, this can lead to problems if they lack the necessary skills and experience for the position.
Solution:
Evaluate position requirements: Identify the qualifications and skills required for each role in the business. If needed, provide training or courses to help team members build the necessary knowledge and skills to perform well.
Hire objectively: If a family member meets the qualifications, they can be considered for the role. But if not, it’s better to recruit professionals from outside the family. Ensure the recruitment process is fair and unbiased.
Training and development: Offer appropriate training for both family and non-family members involved in the business to ensure they are equipped with the right skills for their respective job descriptions.
When building a business, differing opinions are normal and often healthy. But in family businesses — where members often share similar life experiences and educational backgrounds — there can be a tendency to have uniform perspectives. This can limit innovation and critical thinking.
Solution:
Engage external consultants: Bring in outside business consultants who can offer fresh perspectives, innovative ideas, and practical solutions for existing problems.
Networking and collaboration: Build relationships with other businesses, join industry associations, or participate in business training programs to gain insights and learn from external experiences.
Diversify the team: Consider hiring individuals with different backgrounds and professional experiences, especially for roles that influence business development. This will enrich perspectives and improve decision-making.
Illustration of Creating a Family Business Plan. Image: freepik.com/rawpixel.com
Another common issue is the tendency not to have a long-term plan. As mentioned earlier, family businesses often share similar perspectives due to shared backgrounds or experiences. However, this uniformity should be avoided. It’s essential to ensure that there is a clear and forward-thinking plan for the future.
Solutions:
Hold collaborative discussions across all divisions: When developing a business plan, it’s important to gather fresh ideas from all departments, especially involving C-level executives as decision-makers. Develop a long-term business plan that outlines the company’s vision, mission, and strategic goals.
Define the right strategy: Set clear steps and strategies, while also considering the necessary resources to achieve those goals.
Conduct regular evaluations: Review and adjust the plan periodically based on changing conditions to ensure the business can adapt to market and industry shifts.
Finally, one of the most pressing challenges is financial management. No family business is immune to cash flow problems. By the time a business reaches the third or fourth generation, it’s possible the company may face cash shortages, and owners might need to rethink how to sustain operations.
Solutions:
Adapt to technological advancements: Family businesses must stay adaptive, especially with the latest technologies. One way is by using digital solutions like integrated platforms from Youtap, such as Youtap POS. As a point-of-sale app, it enables family business owners to record and monitor cash flow in real-time through transactions and daily sales reports.
Separate personal and business finances: To maintain financial health, it’s important to set up dedicated business accounts under the company’s name to prevent confusion and avoid potential legal issues in the future.
Create and plan realistic budgets and financial projections: Every business should prepare realistic budgets and financial forecasts to track success and guide future decisions. Conduct regular financial evaluations to monitor progress and inform strategic actions.
Running a family business is not an easy task. Just like launching a business solo or with a partner, it requires shared vision, mission, commitment, and professionalism among all involved parties.
Moreover, managing a business today requires the use of modern tools to support daily operations. In the era of digitalization, nearly all businesses and transactions have shifted to digital platforms. One such solution is Youtap. As a fintech company, Youtap provides integrated digital solutions such as Youtap POS (point-of-sale app) and Youtap BOS (a B2B marketplace), suitable for both SMEs and large enterprises.
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