Running a family business can be a rewarding journey, but, as anyone who’s done it will tell you, it comes with challenges. This is where it’s good to have some wisdom from people who know it best. Recently, Biz talked to a few local financial experts to get their thoughts on planning and managing a family business.
John Zollinger, executive VP and chief banking officer at HomeBank, started with an immediate caveat: “Much of my advice is more about what I have seen over the years in what works and what has created challenges,” he said. “While my tips may seem more practical and psychological than financial, it will affect the finances of a family business.”
For Zollinger, the first thing he advises family businesses to do is to fully understand and communicate each person’s roles and ensure each person is in a position that suits them best.
Second, family dynamics aside, the most successful family companies Zollinger has encountered can separate family and work.
“Words like ‘Dad,’ ‘Son,’ ‘Uncle Dan,’ or ‘Aunt Katie’ are not used in common conversation around the office,” Zollinger said. “This sets a very professional tone in the office that everyone follows.”
For those starting new business, Zollinger warned against overburdening a company with too many family members. “[This] can be a very detrimental thing to do to a burgeoning company that is trying to grow,” he said. “Keep overhead down. This is important to the early stages of any company because capital is hard to come by for many small businesses.”
“For established family businesses, one of the most important aspects is to make sure the infrastructure of the company is growing with the business,” advised Meghan Donelon, New Orleans market president at Red River Bank. “As businesses grow, they tend to become more complex. Succession planning is also critical to make sure the legacy of the family business continues. It’s never too early to start working on your succession plan.”
Both Donelon and Zollinger emphasized the importance of longevity and creating a plan for the future.
Zollinger laid out a pattern he’s seen before.
Traditionally, the first generation has a great idea. They get the business off the ground and establish a good foundation. The second generation watches their parent or parensts dedicate their whole life to the business. They see the precious thing that their parent developed and appreciate the value of it. They are hungry to make it bigger and better, and they often do.
Then, because their parents made the business even more successful, the third generation may not appreciate the time and effort it took to grow and might not be as in tune to the value the business creates. The third generation generally goes one of two ways — they can be a visionary and have great success or they are too comfortable and don’t have the ability to see the landscape changing, so the business struggles to reach a new level and begins to decline.
This is where having a plan for the future really comes into play.
“Helping the third or fourth generation understand the value of the business is the responsibility of the second-generational leaders. The key is keeping their kids hungry for success to carry it on,” Zollinger said. “The above is not true in all cases, but over many businesses in many places, I have seen this scenario play out. Businesses that get to the eighth or ninth generation are unicorns!”
John Zollinger
Executive VP and Chief Banking Officer
HomeBank
Train the next generation outside of the business before allowing them into the business. Ask them to forge their own way and find experience that they can bring back to the family business. It will help them gain acceptance from the employees and may give them a personal sense of accomplishment that they can provide value to the business once they join and contribute.
Meghan Donelon
New Orleans Market President
Red River Bank
Always stay within the budget created for the year unless you are truly comfortable amending the budget. People (particularly family members) expect you to say ‘yes’ always because they know you can, but adhering to your own policies sets the right tone for the organization.
Did you know? According to Harvard Business Review, family businesses tend to do a better job keeping expenses under control and carry less debt.
