‘Professionalising’ the Family Business

When growing a family business, family business owners often find themselves at a crossroads – on one hand, there’s the wish to keep things ‘in the family’, and on the other, there are outside business coaches and consultants urging them to ‘professionalise’.

What does it actually mean to professionalise a business? And is keeping the business in family hands and professionalising it mutually exclusive goals?

The casual nature of family business

Family businesses – particularly first or second-generation businesses where the founding force is still active – can generally be distinguished from corporations by the following characteristics:

• A commitment to family values
• An entrepreneurial spirit
• A casual attitude to business processes and procedures
• Informal recruitment and employment policies
• Less defined business strategies and plans
• Less conventional management practices
• A ‘do-it-yourself’ attitude, which may lead to multi-tasking and the exclusion of outsiders, even those with specialist knowledge.

This casual working space can be very conducive to entrepreneurial activities – allowing employees to thrive and grow in a way that big business doesn’t allow. Often, it’s the very reason entrepreneurial types leave the corporate sphere and strike out on their own – and also why family business owners recoil at suggestions that their enterprise should professionalise. After all, a more casual business operation has been sufficient to achieve business, financial and personal objectives thus far – so why change?

‘Professionalising’ versus ‘corporatising’

A clear distinction should be made between ‘professionalising’ and ‘corporatising’ a family business. To professionalise is merely to impose a professional structure to an entity and its processes and procedures. Corporatisation, however, is what fly-by-the-seat-of-your-pants entrepreneurs fear most – to develop or turn a small business into a large corporation, or as they may see it, the morphing of an innovative, inspired family enterprise into a staid corporation overly focused on processes and procedures.

Whilst some family business owners may indeed strive to turn a small business into a booming multinational, others may prefer to keep it straight and simple. That’s where professionalising comes in – a few well-considered tweaks here and there can benefit any family business, without detracting from its firm family roots and core values.

Professionalising can promote:

• More sound financial management
• Better allocation of resources
• Better research and development and hence a wider range of products and services
• More effective service delivery
• Better branding and greater brand awareness
• All of which leads to increased efficiency, profitability and, ultimately, business growth.

When should a family business professionalise?

Professionalisation is associated with taking a business to the ‘next level’. Consider embarking on a process of professionalising your family business when:

• You are experiencing rapid growth
• A co-investor or partner comes on board
• The business entity changes format, for example from a sole proprietorship to a private company or when a company lists on the stock exchange
• New (outside) managers are recruited to work in the business
• There is a hand-over from the founder to a next-generation family member.

How is professionalisation achieved?

Professionalising is about enhancing the family business rather than making it into something overly complicated which doesn’t suit the family’s objectives. Some of the key points on how you can achieve professionalisation within your family business, include:

• If you haven’t already, formalise the business’s legal structure
• Develop a formal business plan outlining a strategy plan and an operational plan
• Formalise business leadership bodies – for example, establish a Board of Directors and an Executive Management Team
• If you don’t like the thought of non-family members sitting on a Board of Directors at this stage of the game, consider an Advisory Board – a body of appropriately skilled and experienced individuals who can provide advice and guidance on business matters but who don’t have the power to vote on such matters
• Create and distribute a Company Policies and Procedures File in which all business policies and procedures are clearly defined.

Professionalising your family business is a key step towards ensuring its longevity.

by Christopher Bernard (KPMGFamilyBusiness.com)