Top 10 questions for family businesses – Part 1

No two family businesses are alike, but successful ones tend to have best practices in common.

Reflect on the following checklist and determine how your enterprise can fulfill its potential.

  1. Does your company have an organization chart? Do your employees understand and agree with their job descriptions?

This question may seem like a no-brainer, but many family businesses, particularly those in the first or second generation, operate without a chart. Either everyone knows who is in charge, or the business is so fluid that everyone thinks he or she is the head. Sometimes, a family business may have an organization chart, but it is only for show. Neither situation is ideal.

A chart does not have to be complex, positions or titles do not have to be grandiose. But family businesses need a simple chart in order to delineate the chain of responsibility and to foster accountability for various tasks. As for job descriptions, these need to be spelled out to minimize possible misunderstandings and conflicts later on. In many family businesses, employees tend to wear many hats and accept overlapping responsibilities. For example, if Alice is the sales head, is she also responsible for marketing?

  1. Are company goals SMART? Is planning adequate enough to implement the SMART goals?

Not all goals are equally effective. Think SMART: Goals need to be Specific, Measurable, Attainable, Realistic and Time-bound.

Instead of saying “I want to increase profits,” and hope to heaven that it will miraculously materialize, you need to plan along these lines: “How can company profit grow by two percent after three months? Should sales increase by 10 percent to offset increasing costs? Should expenses be cut by a quarter because sales growth of more than three percent is not attainable, given the recession?” Part of planning is breaking down tasks among key employees, and aligning forecasted goals with real ones at regular intervals.

  1. Are periodic reviews of procedures, products, financial indicators seriously done?

Long-time procedures may not work as effectively as they did in the past.

Doing balance sheets by hand might have worked when the founder was dealing with a dozen customers a decade ago, but now that customers number in the thousands, quality computer software would be essential.

Would traditional distribution channels still work? Or perhaps in the past, adding a small business piecemeal to the mother company might have been the most convenient way to go, given the number of siblings who want their own enterprise. But now that the third generation is set to lead the business, it may be best to harness synergy by consolidating separate concerns into a holding company.

As for financial projections, reviews of those for your company vis-à-vis those for your industry can also help you compare how you are doing against your competitors, and determine if financial planning changes are needed.

  1. Are the founder’s, owner’s, or top executive’s time and resources mostly dedicated to decision-making or other non-routine tasks?

Many founders prefer to do everything, from delineating the vision of the company to sorting incoming mail. Except for a proprietorship, most routine matters can and should be handled (and in fact, are often done better) by other employees.

Did you spend most of the morning reviewing profit figures for last month, choosing which expenses to cut down? Or did you waste time deleting spam e-mail from your inbox? As owner-manager, your main goal is to ensure the success of your business, so devote most of your resources to matters only you or your top people can realistically do.

  1. Are company policies written down and communicated clearly to employees?

Many family businesses operate according to unwritten, and at times, even unspoken rules. Employees cannot read minds, and often do not share the gut feel or business instinct of the owners or founders. Without proper orientation or guidance, employees inevitably make mistakes, often costly ones. Human resources departments (if they even exist in the company) cannot do their jobs well if owner-founders have not set out expectations and policies.

With the help of the HR head, make the effort to specify in writing pertinent policies, adding more if needed. Afterwards, ensure that employees understand and abide by these policies.

Next week: Questions 6 to 10

(Queena N. Lee-Chua is on the Board of Directors of Ateneo de Manila University’s Family Business Development Center. Get her book “Successful Family Businesses” at the University Press (email msanagustin@ateneo.edu.) Email the author at blessbook.chua@gm)

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