Why Do Family Businesses Fail?

why do family businesses fail

Are you planning on starting a family business? Are you in a family business already? Family businesses almost always seem like a great idea. You’re working with the people you trust most in the world. You know you can depend on them to get things done and you trust their judgment. So, why do family businesses fail?

Initially, many wonder what could possibly go wrong.

Unfortunately, the reality is that starting up a family business often leads to the ruining of relationships, including the failure of the business itself.

If business owners aren’t able to make a distinction between what’s best for the business and what’s best for the family, they will ultimately end in a loss and their families will never be the same.

Read on to find out all you need to know about why family businesses fail.

Why Do Family Businesses Fail?

Here are the main causes of failure in family businesses.

This is so that you can better understand what it is you need to avoid to be successful.

No Separation Between Business and Family

why family businesses fail

One of the most important things that business owners need to clearly understand is the lines between family and business.

You’re creating a company and everyone you employ needs to understand the company vision and the plan to execute it professionally.

This isn’t a way for specific family members to avoid working and you can’t feel obligated to take care of everyone when something goes wrong.

A business is a business and that’s that.

Getting the professional side of things mixed up with the personal side can get messy.

This is a leading cause of why family businesses fail.

It can lead to you making decisions that aren’t necessarily the best for your organization simply because it suited the needs of a family member at the time.

This blurring of the lines will end up being incredibly destructive and there’s really no way to survive it.

You’ll end up losing both sides of the equation.

Promotion of Unqualified Business Members

reasons why family businesses fail

There is another serious issue that many business owners end up being guilty of in family businesses.

It is the promotion of unqualified members of the family to leadership positions within the organization that they’re unprepared for.

Just because you love your cousin and want to see them succeed doesn’t mean you should feel obligated to put them in a role where they are not qualified.

After all said and done, your business and its welfare need to be your main priority.

Putting certain people in management roles will only end up with other employees feeling resentful.

In addition, the work will actually not get done.

Eventually, there will be a breakdown in the relationship between you and your family members.

The best thing you can do, if you’re looking to promote someone in your family, is to check if they have the right skills for the job.

If necessary, encourage them to take a business course.

They should deepen their understanding of the industry before you promote their advancement.

Thus you will avoid one reason why family businesses fail.

Failure of Good Succession Planning

causes of family business failure

For any business to continue to be a success, business owners need to take succession planning seriously.

You may find the idea of leaving your business in the hands of anyone else completely overwhelming.

Nonetheless, it’s a critical thing that needs to be thought about and then thought about some more.

Of course, making something you love so deeply the responsibility of someone else can be difficult and emotionally overwhelming.

Nevertheless, you need to remember that failure to do this also leads to why family businesses fail.

What you should do is to take the time to come to the right conclusion.

Set a plan in place to help them ease into the leadership position when it’s your time to go. This will help give you the peace of mind that you need.

Create a guideline for your successor to follow to make the first steps of the takeover as easy as possible.

No matter how much you don’t want to think about it, it really needs to be a serious priority.

Failure to Address Governance

overcoming family business failure

In building and maintaining a successful business, everyone who has a role to play must understand that role 100%.

This factor when ignored usually contributes to why family businesses fail.

Your employees should understand how decision-making and authorizations run.

They should understand who is in charge and who is to do what.

Otherwise, things will become so confusing and complicated that they end up leaving before things really begin.

As a business owner, you need to take the time and effort to clearly communicate every person’s role.

Also, explain what they can do to expand that role in the future.

Clearly defined governance will be the key to success in every business, and a family business is no exception.

Make sure you make every role as clear as possible, both quickly and efficiently.

Families Focus on Estate Planning Rather Than Management Training

what causes family business failure

Another big reason that adds to why family businesses fail, is when business owners only think about who they will leave their business to.

Among whom will they divide up both the roles and the assets.

This is done rather than working with the family members they have around them and giving them the in-person education that they need.

When you care more about who gets what when you’re gone, and you don’t consider skills and capabilities those who suffer the most are those left behind.

In these situations, successors are often left trying to fill shoes they’re nowhere near ready for.

When you’re clueless about leading your business to the future, whether pertaining to product management or finances, you will eventually make enough poor decisions that the company simply can’t recover.

Make sure this situation is avoided at all costs by doing everything to educate those who will come after you.

See that they have access and that they take advantage of management training.

Failure to Take Advantage of Familial Benefits

why do family businesses disintegrate

When done correctly, family businesses can come with a wide range of different advantages.

There is a type of loyalty and commitment that comes with families.

This can be put to good use in your company.

Sometimes, there’s really no one you can trust with your failures and successes more than your own blood.

However, there are many negatives that come with these close relationships as well.

This includes sibling rivalry and a lack of professional courtesy.

To avoid falling prey to the latter issues, many business owners try to cut off those familial connections as quickly as possible.

Thus, resulting in a loss of that trust that was there initially.

Thereby, ultimately resulting in the overall failure of the business.

You need to make sure you take advantage of the family idea at every possible opportunity.

This is so that you can capitalize on its advantages today and avoid one more reason why family businesses fail.

Family Businesses Fail Because The Heirs Lack Financial Education

family business problems

If you were able to grow a successful and thriving business over the years, the likelihood is that your children and families were able to enjoy quite an entitled and privileged upbringing.

Unfortunately, many who grow in more lavish circumstances often have little to no understanding of finances or money management.

This can be absolutely destructive when they’re in a leadership position in a business.

They can make poor decisions that could cost the business significant amounts of money.

They also can put the business on an unnecessary path that could put everything you’ve worked hard for at risk.

As a business owner, you should try to avoid this contributory reason why family businesses fail.

It is your responsibility to make sure that your successors have every skill necessary to take on your role after you leave.

The earlier you start helping them imbibe these ideas, the more this knowledge will become second nature once they take on the leadership role later on.

Family Businesses Fail Because They Lack Trusted Advisors

problems with family businesses

To run a successful family business, one of the most important things you can have is skilled and talented advisors.

These should also understand the unique circumstances that come with working in a familial structure around you and available to you at all times.

You certainly want to make sure you have the best legal and financial team possible.

You also need people whom you can completely trust with a wide variety of different issues.

They will be constantly able to listen to your concerns, making suggestions that will be based on your best interests regularly.

Not only will these experts be a necessary advantage for you, but they can also seriously benefit your successors.

Having these established advisors in place will give them the confidence that they need to really step into their new position and take the reins.

Thus helping you avoid yet another cause of why family businesses fail.

Most Family Businesses Fail Because Of Conflicts Within the Family

challenges of family business

Issues happen within the family, whether it be a divorce, making decisions without initial consultations, or any other wide variety of problems.

Allowing that discord to come into the workplace can be absolutely devastating.

No matter what sort of strife and conflict is happening between you and your family members, keep things professional whilst at work.

Again, business is business, and bringing personal matters into your organization will never end well.

Make sure you have certain rules and procedures in place ahead of time that you can rely on and fall back on during these times.

So that things can move ahead accordingly and the business can move full speed ahead.

Keep away another reason why family businesses fail.

Deal with your problems in your own home, rather than in front of each and every one of your employees.

Older Generations Not Wanting to Give up Power

At the end of the day, this is a business you’ve worked your entire life to create.

It’s a part of you and the idea of giving that up and handing it all over to someone else, even someone you love, can be emotionally overwhelming.

A lot of business owners find themselves holding on until the absolute last second.

They simply refuse to retire and relinquish the power they’ve worked so hard to attain.

Although quite frankly, it makes sense.

However, progress is the key to any successful company.

Without it, the world will simply not move forward as it should.

To make the transfer process a little easier, take things gradually.

Give your successors more and more responsibilities over time until you finally feel confident enough in their skills.

Different Generations, Different Visions

family owned business failures

It’s true that different generations have different expectations and ways of doing things.

However, generational conflict in a business can hinder development.

It can push the business back significantly in comparison to the competition, which can often lead to failure.

If you want your business to succeed, you need to be willing to let go of the reins.

You should allow those coming up after you to throw around their own ideas.

While there may be fundamental differences in values and the overall mission, your business will only be able to thrive with new and exciting ideas that push the boundaries of what your organization has always done.

Don’t let your own stubbornness and fondness for what has been, get in the way of what could be.

Keep your business’s success at the forefront of your mind and let those fascinating possibilities fly.

Exclusion of Certain Family Members

family run business problems

In running a successful family business, ensure that everyone who wants to be included is given the opportunity to some extent.

This is if they are qualified and are willing to be trained.

When specific family members are excluded, for whatever reason, it can quickly cause strife and discord within the family itself.

Eventually, this spreads into the workplace.

Do your best to ensure that the opportunity for open communication is always available to anyone who has something to say.

This is also a key factor in why family businesses fail.

Also, make sure that everyone feels that their opinions are valid.

The more your family members feel they’re able to express themselves and their concerns, the better off you’ll be in the long run.

Always Being Available to Family

traps that cause family business failure

It’s true that you want to make sure that every family member feels included and feels like an important part of the team.

However, that doesn’t mean they should feel safe walking all over you.

Make sure you draw clear lines between what is acceptable and what’s not.

A professional boundary must always be kept in place.

Ensure that you clarify what things your family can take advantage of and what is simply crossing the line.

Without these limits being made clear and unquestionable, you’ll never be able to succeed.

The less of a formal structure you have, the more you’ll end up losing out to favors that cost you more and more as time goes on.

No Fundamental Business Education

issues that cause family business failure

At the end of the day, running a business requires a certain level of understanding, knowledge, and skill.

Only by bringing these characteristics together can anyone expect to be a good business leader.

Unfortunately, many people walking into family businesses believe that they have all of this in excess simply as a part of their inheritance.

It’s as if these skills simply sprout into being once they’re in the leader’s chair.

However, when your successors don’t have the necessary education behind them, they will quickly come to learn just how unprepared they actually are.

On the other hand, traditional business education programs are better suited to tackle all of the challenges that come with working in a familial setting.

The best education your successor will be able to receive will be under your direct care as well as from formal training programs.

Refusal to See Potential Problems

why family owned businesses fail

When you work with family, you can often find yourself shutting your eyes to serious potential problems.

Even when it’s something glaringly obvious to everyone else around you.

While it’s true that family is family, the reality is that in the business world, they really can go wrong.

If you can’t see the flaws and shortcomings of those around you, you’ll never be able to run a successful business.

If you find it too challenging to call out members of your own family, then appointing a trusted authority figure to do so on your behalf will be absolutely necessary.

What you can’t continue to allow, is the issue continuing for long stretches of time without end simply because you’re afraid of causing conflict.

Make sure you’re able to deal with the situation before it gets out of hand and has a serious effect on your business.

why family run businesses fail

Final Words On Why Family Businesses Fail

Running a family business is nothing like running a standard business operation.

There are so many intricate details and necessary steps that need to be taken to ensure success.

Being able to find a balance between personal and professional areas will be key.

You’ll also need to know when it’s time to make a change so that your business can really progress, rather than get stuck in the past.

Keep these traps and common causes for failure in mind so that you can avoid them as much as possible and lead your business down a path to success for generations to come.

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