Personal goals can mix with business goals

There are numerous agendas with these constituencies. Conflict often arises because one or more of the continuities is neglected.

To overcome this challenge and ensure the success of your family business, it is important to see the family business as a system of these three constituencies. This system is often described in a three-circle model developed by Harvard Business School in 1982. The model shows three overlapping circles labeled ownership, family and business.

In the nearly 20 years I have coached family businesses, the main reason they fail is they don’t have an operating system to manage all three circles.

The first step in the operating system is to develop a clear and concise strategy for growth. Without clear direction and a vision for the future, the business will flounder. It’s nearly impossible to get to a destination without a map to help provide direction. It is important that this plan is written, is developed with the leadership team, is shared with everyone (they are the ones who are going to help you achieve it), and accountability for its execution is clearly communicated and followed up on.

In addition to the strategic plan, an eye needs to be put on increasing value in the company by focusing on key value drivers. One of those drivers is developing the leadership team and the succession plan for the owner/president and other key positions. This is not an overnight process. The best family businesses have No. 2’s behind all key positions so they are ready no matter what happens.

Another component of step one is family business governance. Family business governance is a process or structure to educate and facilitate communication between family members. It also provides a forum for constructive discussion, problem solving and decisions about the family as it relates to the business, as well as how the business relates to the family. Some of the components of family business governance include a family constitution (family core values, hiring practices, employment, compensation, etc.), an owner’s council, and a board of advisers that includes non-family members.

The second step ties the owner’s personal goals to the business goals and helps ensure alignment. Fist is an understanding of the owner’s personal financial current picture and goals, and then ensuring the business is grown to fill any value gap. This step also entails reducing risk by reviewing buy/sell agreements, estate plans, employment agreements and “golden handcuffs” and an emergency management plan (the steps to be taken if the owner/president can’t return to work).

The third step also tied to the owner’s personal goals. This step is all about figuring out the next chapter for the owner, whether it is in the business or outside the business. This is often a transition from success to significance and is a key step to succession (the owner now has a path to transition ‘to’ versus transition ‘from’), and begins to set the stage for the owner to figure out what’s next after the business. You don’t go from a life where your day is defined by objectives and decisions to doing nothing (no, you will not only golf every day for the rest of your life).

Statistics show that 75 percent of owners regret their exit after one year. The primary reasons are that they didn’t understand their personal financial value gap, and they never figured out their next chapter.

Successful family businesses navigate the three circles of the family business system with an operating system. Start sleeping better, get more time for yourself, and ensure your financial certainty by implementing a family business operating system.

Tom Garrity is managing partner at Compass Point Consulting LLC in Hanover Township, Northampton County. He can be reached at tgarrity@compasspt.com

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