A key area of concern for any family business owner is financing growth and balancing it with distribution of wealth.

The challenges that family business owners have to face are much more complex than those faced by other business CEOs. Over and above the ongoing business challenges, family business owners also have to balance the involvement of the family emotions in relation to the business and the biggest challenge of all is how family business owners will prepare the family and the business for the inevitable transition that both will have to go through under one form or another.

Understanding family culture and how this integrates with the business culture while both family and business are expanding is a major challenge that every family business owner has to manage if they aspire to successfully prepare the family to be fit and proper managers and owners of their future legacy and wealth.

The vast majority of entrepreneurs creating businesses that over the years end up as a family business would not have planned a family business from the outset. This transition happens over time and in most circumstances is a natural progression of a person’s own progression from being employed, moving into the process of setting up a small operation based on a person’s idea or hobby.

The partner or wife starts getting involved as the business grows, the family starts growing and, without realising, one starts seeing the children becoming involved in the business. Consequently, an entrepreneur ends up being first generation family business owner without ever having planned or prepared for this.

Over time, as the business and family involvement grow, new challenges external to the business but intrinsically intertwined will start to be experienced. The dynamics found within a family business are very different to those of their non-family business counterparts, which families have to address.

Despite the differences in the relationships, emotions involved and interests arising out of the particular involvements, we still notice specialists trying to implement the same solutions and approaches as if family businesses are normal entities.

Although it is often difficult for the founder to start relinquishing control over the business they helped grow, as the business develops they will start not having enough time to take responsibility for everything, including managing daily operations, business development and planning, sourcing new suppliers, developing the operations as the business evolves, marketing and sales functions, financial management and HR. It is a no brainer that other dependable and specialist people must inevitably be recruited to take responsibility of some of these roles.

Growing a business can be both an exciting and a daunting time for anyone

Care needs to be taken to recruit people with the right skills to work in the organisation. However, having spoken to many family business owners over the years, both in Malta and internationally, it is clear that family businesses that manage to achieve faster growth, are those that strive to bring in the best people for the role, be they family members or not.

Developing a core, competent team that not only understands the business objectives but also integrates business objectives with family objectives will help to ensure the business has the professional management to achieve further growth. Only in this way can the family position itself to continue to receive the benefits it expects emanating from its ownership of the business.

There are some steps that will help to ensure that the culture is retained, such as: having a clear articulated vision for the business; developing a family charter or family constitution; clearly communicating the core family values and incorporating these into the way the firm operates; living the values in the business on a daily basis, leading by example and bringing the family culture to life; undertaking a clear education process for family members and an induction process that includes a brief history of the business; evolving the family culture with that of the business and grow them together; and creating a clear policy for the distribution of wealth and the risk policy that the family is ready to accept when undertaking new challenges.

It is also critical for a family business to clearly communicate to all stakeholders, especially the family on a regular basis in a consistent manner; and manage the finances and distribution of wealth when the business expands or diversifies.

As the business grows, there will be new challenges and one of the key areas of concern for any family business owner is financing the growth and balancing with it the distribution of wealth. The owner has to understand that growth or expansion would require new staff, new procedures, new systems, new commitments and all these will cost the business money.

Thus, care needs to be exercised to ensure the right finance policy is in place to support this growth, balanced with a clear dividend policy which is set in place long before the owner retires. In this way the family starts understanding and accepting the concept of retaining profits to sustain the liquidity and future growth of the business, as opposed to siphoning out all available liquidity from the company.

When expanding, the family has to understand that it is crucial to consider long-term financial planning for the benefit of all, both the family and the business.

As a result, the family has to prepare and implement a robust financial structure that should include, but is not limited to: developing an appropriate finance team or appointing someone to take full ownership and responsibility for the finances; managing cash; considering all finance options; introducing regular review meetings to manage the actual financial plan against the budget and review as necessary; and considering all expenditure requests to make sure that when cash is tight the business is funding the essential business needs.

Growing a business can be both an exciting and a daunting time for anyone and, in a family business, there is often the added pressure associated with having your name above the door or, in the event of the second, third or later generations, not wanting to be the generation that destroys the business.

Family firms with the right governance, the right values at the core of what they do as well as the right financial strategies are essential for the sustainability of family businesses across generations.

Mario Duca is managing director, Family Business Advisers.