Family business is about relationships
Family businesses are much more complex entities than their non-family counterparts. The central role played by the family and the inherent conflicts that can arise between family and business values create unique issues that require unique solutions.
The family system is emotion-based and inward-looking, and places high value on the long-term care and nurture of family members. This contributes to a conservative structure that operates to minimise change. The business system is based on contractual relationships. It’s outward-looking, focused on targets and results. Business systems seek to make the most of change. Family systems seek to minimise it.
STRUCTURING FAMILY BUSINESS FOR SUCCESS
Managing these different values requires effective governance. By establishing a governance structure, the boundary between family and business is clarified. It helps the family develop a cohesive approach to the business, which can combat any tensions. This helps manage expectations by giving everyone a better understanding of their roles and responsibilities.
BDO FAMILY CHARTERS
BDO has worked extensively to help families understand and manage these systems; helping you predict, prepare for and mitigate the risks of inevitable problems. Much of our work to improve governance results in a family charter. This document details the policies and structures that will enable the family and the business to operate independently and prosper in harmony. It provides clarity for all family members – including those who are not involved in the business. The types of issues that charters typically deal with include:
- Management philosophy and objectives
- Share ownership
- Family councils
- Family employment
- Family meetings
- Succession planning
Preparing a family charter is not straightforward. It requires commitment and communication from everyone involved. But often the process and discussions are more valuable than the final document, creating greater clarity and understanding within the family.
It can take a lifetime to build a successful business. But figures show that more than three-quarters of founders literally throw away their life's achievement by failing to plan adequately for succession.
Handing over power to a new generation is difficult in any corporate environment. Large organisations devote significant resources to finding and grooming new board members. But the issues raised by succession are particularly evident in family businesses. With evidence suggesting that only 13 percent of family businesses make it through to the third generation, the need to plan for succession is obvious.
In family business, business handover can be frustrated by many factors. These commonly include:
- Belief in own immortality
- Reluctance to release control and power
- Threat to personal identity
- Bias against planning
- Difficulty choosing among children
- Fear of retirement
- Jealousy and rivalry
HELPING FAMILY BUSINESSES THRIVE ACROSS GENERATIONS
The statistics suggest that succession planning for family business is overwhelmingly complex. However, our experience shows the options are relatively clear-cut. Most family businesses either:
- Appoint a family member
- Appoint a caretaker manager to act as a ‘bridge’ and mentor
- Appoint a professional manager
- Liquidate the business
- Sell the business – in part or in whole
- Do nothing and fail.
What you choose to do depends on your vision for the business. Succession planning should always start with this conversation. As each organisation is different, BDO will work with you to formulate a clear succession plan that fits with your vision and ensures a stronger future for your family business.
TAX PLANNING AND COMPLIANCE
Dealing with changes in tax and revenue law is essential for Caribbean businesses. Identifying and optimising the opportunities available can be key to your success. Governance and compliance is also a big issue for family business, with tax authorities placing increasing emphasis on tax policies that affect family businesses.
The BDO’s tax experts work with company directors and executives to identify tax risks, assess their impact and develop comprehensive plans to build an effective tax strategy for your business.
Our indirect tax experts specialise in providing advice on property and commercial transactions, as well as planning, advice and compliance. We can help you negotiate and resolve disputes with revenue authorities; and advise on other transactional taxes. These include stamp duty, customs and excise duties, and land taxes.