When it comes to family businesses, it’s essential to consider whether the primary focus is on current income or long-term growth. While most family businesses would say they are building for future generations, sometimes their behavior does not match that answer.
We recently had the opportunity to work with a second-generation family business owner who believed that salaries were too high, staffing levels were bloated, and processes were inefficient. He asked us to analyze his combined family business and family office to reduce costs. After several conversations, we concluded that the current owners were overly focused on managing costs and maximizing their current dividends, to the detriment of growth for future generations.
So, how can you distinguish between an income focus and a growth focus? Here are some questions to help you determine where your business falls on the spectrum:
- Are you more concerned about how big your staff’s salaries are (income focus) or how much value staff members add to the business (growth focus)?
- What are you doing to train and prepare the next generation of leaders, both family members and non-family members?
- Does your governance structure include outside advisers who can challenge and improve the business (growth), or is it just you and perhaps one or two longtime staff members (income)?
- Do you have a documented strategic plan for the future, perhaps five or 10 years out?
It’s important to note that in the early years of most businesses, the founders are trying to pay their mortgage and feed their family. However, over time, often extending into the second or third generation, the business income and value grows to a point where it exceeds what the current generation is likely to spend. As this happens, we sometimes see multi-generational business owners who remain focused on maximizing their own income rather than the benefit to future generations.
Why does this distinction matter? Families that are focused on maximizing income for the current generation often have some mix of the following:
- Dissatisfaction among business staff, as they are often underpaid and have less opportunity to grow and improve the business.
- Disengaged next-generation leaders, who have not been given opportunities to grow and improve the business.
- No excitement about the future of the business.
- The business is no longer growing at rates that it once did.
On the other hand, families that are focused on growing the business for future generations:
- Have a strategic plan showing how to maintain impressive growth rates.
- Are more interested in what value they get out of staff, and may even slightly overpay them to ensure they stay and build for the future.
- Are preparing the next generation for leadership.
- Have excited and engaged family members and staff.
- Have governance designed for the next generation, providing the oversight and guidance they will require when they take over ownership.
If you find yourself on the wrong side of the equation, don’t worry. You may need help from an outsider to turn things around, but begin by assessing your current condition. Engage with your key staff and truly try to understand their concerns and challenges. Talk to your next generation, identifying what they want and what will get them excited about the business. You can’t force the next generation or current staff to be in the business, but you can create a vision that is exciting and enticing enough that they want to be part of it.
Finally, involve your key staff and the next generation in creating a long-term strategic plan for the business. If you can convince them that you are sincere in your efforts, you might be surprised by what they come up with and the newfound excitement and joy in running the business. In fact, you might even find that the road to building long-term value also has a side benefit of increasing your current income.
In addition to focusing on growth and balancing current income, it’s essential to have the right support and guidance to help you achieve your goals. As a CEO business coach, I specialize in helping family businesses overcome obstacles and achieve their full potential. If you’re interested in learning more about how coaching can benefit your business, I invite you to schedule a complimentary discovery coaching call with me today. Let’s work together to develop a plan that ensures the long-term success of your business. https://www.eisbrennerinc.com/complementary-discover-call