Professionalizing Your Family Business: Level Up to Stay on Top

Professionalizing Your Family Business: Level Up to Stay on Top

Recently, news reached us of a local family-owned company’s closure after 70 years in business. While the specifics behind their decision are unknown, it served as a reminder that at some point in their life cycle, all family businesses come to a crossroads and must answer the question: How do we adapt our business practices to secure our future success? This is where the concept of professionalization becomes highly relevant.

The goal of professionalization is to enhance long-term sustainability by adopting some of the practices and standards associated with professional organizations. It includes moving the business away from reliance on family ties and informal management structures toward more formalized processes, professional management practices, and a culture that emphasizes performance and accountability.

The path to professionalization isn’t without its challenges. Many family businesses find it difficult to maintain their unique identity as they transition toward more formalized structures. Others struggle with resistance from within the family or face uncertainty about how to implement changes without sacrificing their core values. To address these hurdles and ensure a smooth transition, we recommend a four-step approach to professionalization.

1 – Define and Align the Family
Before beginning to professionalize, it’s essential to establish the family’s role and the core values that have shaped the business’s identity. This involves aligning the aspirations of the family with the company’s future trajectory and pinpointing the unique attributes that have led to success. By outlining clear roles for both family and non-family professionals, the business can capitalize on the strengths that each brings while nurturing a culture of accountability. Articulating these core values and essential roles lays the foundation for transition toward professionalization.

2 – Enhance Business Performance
Enhancing performance in a family business involves several steps. First, establish a strong leadership team and set clear expectations for their performance. Next, define the organizational structure that will best support growth. Professional managers may be needed to run the day-to-day operations of the business. As the right people take their places, they can implement systems to improve operational efficiency, productivity, and performance across the business. Addressing these elements methodically will enhance performance and set the stage for long-term success.

3 – Establish Effective Governance
In simple terms, governance is the framework that guides who has authority to make decisions, how decisions are made, and how everyone involved in the business interacts with each other. When a family business is beginning to professionalize, the most important governance structures to put in place are a board of directors or advisory board, a family council, a family constitution, and a succession plan. These form the foundation for effective decision-making, conflict resolution, and long-term sustainability.

4 – Streamline Decision Making
Excessive control by family members can lead to bureaucratic processes and sluggish decision-making, which takes away from the business’s competitive edge. Internal conflicts among family members can further exacerbate the issue, causing indecision that hinders long-term strategies. Without consensus and alignment among stakeholders, the business will struggle to implement changes and capitalize on opportunities. Addressing these challenges requires a concerted effort to professionalize the business, and implement structures that promote transparency, accountability, and effective decision-making.

As family businesses embark on the journey of professionalization, they must recognize that adaptation is essential for long-term success. By embracing change, fostering collaboration, and instituting robust governance, family enterprises can navigate challenges and position themselves for continued growth for generations to come.