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Did you know Walmart is and has always been a family-owned business? And it's not the only example - big companies like Ford, Nike, and L'Oréal have been family-managed since the beginning. It doesn't look the same for all companies, but it's no surprise that finances have a crucial role in the future of all family businesses.
And no, managing a family-owned business doesn't have to look like an episode of Succession, but is there a recipe for financial success?
Maybe. Maybe not. But let's go through a list of things to keep in mind.
Unique challenges
How does a family business start? The truth is all cases look different.
We all know a story. Whether it is that cute little bakeshop on the corner of your street or a company so big that it's now a common household name, all family-owned businesses have the chance to become powerful companies - but they can also run into some unique obstacles along the way.
One of the most common challenges is finding a clear line between personal and business finances. Family loans, asset sharing, and emotional decision-making can create a confusing financial landscape that is often hard to overcome, and a single unfortunate decision can have even worse consequences for both the company and the family involved.
We also see a lot of trouble with succession planning - maybe a lot less dramatic than the HBO series, but still a common struggle. The topic of who will take over the company can create uncertainty, confusion, and hard feelings between family members, especially when there are multiple heirs to consider.
Obstacles are common for all companies, but family-owned businesses can get trickier. And you may ask, how can a busy family navigate these issues successfully?
We think there are two essential ingredients to the secret recipe: communication and exceptional financial planning.
Financial Planning for Family-Owned Businesses
Find the line between personal and business finance.
Creating boundaries between family and business issues from the beginning can be vital to success in the long run, and it helps with maintaining clear financial records, simplifying tax preparation, and protecting personal assets. Set up separate bank accounts and credit cards for the business, and be disciplined about not mixing personal and business expenses.
Craft a comprehensive budget.
You want to know you have what you need when you need it. Forecasting and budgeting can help you identify potential cash flow problems before they get worse, and it makes space for informed decision-making.
Think about succession (and do it early).
There's no "right moment" to plan for succession, but the earlier, the better. Prioritize creating a timeline for leadership transition and identifying potential successors early on, ensuring the business has enough value and cash flow to support retiring and incoming family members.
Prepare for the unexpected.
Even if you have a family of master planners, there's always space for the unexpected to take you by surprise. You can prepare by maintaining insurance coverage, having a line of credit available for emergencies, and creating a contingency plan for unforeseen scenarios.
Last but not least, invest in professional advice.
Sometimes, you need to bring an expert on board. Even if you're not ready to hire a full-time financial expert, a professional like a fractional CFO can help you handle crucial parts of your business's finance strategy. You can get help with tax planning, investment opportunities, risk management, and even retirement plans for family members in the company.
Remember, running a family business doesn't have to be a taboo. By addressing the unique challenges of family business finance, implementing solid financial planning, and following best practices, you can create a legacy like no other.