Why should a Family Business think about converting into a Professionally Operated Company?

June 16, 2016

 

Allen Nazeri DDS FICOI MICOI

 

One of the reasons that a family business turn itself into a professionally operated company is to increase the odd of its survival. The latest research conducted by the FBI (Family Business Institute), shows that less than one-third of family businesses are passed on to the next generation and out of those numbers less than 1% make it to subsequent generations.

 

If you have a successful family business, you may want to consider a consultant that can help you transition your family business into a professionally run company. I have listed some of the challenges that could face if you continue to operate as a family business.

 

1-  Complacent. Family businesses typically become complacent as the owners resist change. I am usually asked, ‘I have built a successful business, why should I change what is working for me?”. When owners are resistant to change, lets say, adopt new technology or learning new ways to become more efficient in operation, this can be dangerous for the company in the market place. As a professionally operated company, the board of directors who are typically outside investors or other successful entrepreneurs, motivate and inspire the family businesses to continually grow and move the company forward ahead of competition.

 

2- Turmoil in Succession. When a disaster hits, such as the loss of the founder or a disabling disease, since the owner has always been the main person running the business, the rest of the family typically don’t know how to deal with this situation. By the time that other family members figure out what to do, or assign someone to be in charge to make routine decisions, the family business typically suffers loss. This can be in the form of finances or loss of other valuable team members. As a professionally operated company, it is required that you have a written succession plan in place and you would have a team of professionals that can operate the business should there be a disaster.

 

3. Lack of Productivity. As most of the employees in a family business are family members, they sometimes feel that they are entitled to a job and a title. This kind of attitude is reflected in their performance and as result of this, the business suffers. As a professionally operated business, every employee must have to adhere to the KPI ( Key Performance Index ) guidelines established by board of directors.

 

4. Relax Business Practices. Family businesses typically begin without a set of operation manuals and business standards that everyone in the company can follow. This may work well at the beginning of a business but as the company grows and becomes productive, it is very important that these operational guidelines are put in place to avoid inconsistency in operation. In addition, when a family business is ready to be transitioned, a well established list of operational standards and guidelines will help the business value higher in the eyes of the new owner. As a professionally operated business, the board of directors will insist to have a well defined written operational manual that can easily be understood and followed by employees or future company leaders.

 

Dr. Allen Nazeri is the CEO of Business Mastermind Group International as well as the founder of Dr. Allen Nazeri Consulting & Advisory Group with offices in Las Vegas, Hong Kong and Dubai. The advisory group assists medical and dental family businesses in transition phase to a professionally operated company and prior to valuation for an IPO exist strategy or private equity investment. For more information, you may contact Allen Nazeri at Drallenci@gmail.com

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