Family Business Consulting
Family businesses have been the growth engines for the global economy since time immemorial. Trailblazers for the entire business ecosystem, they generate massive streams of employment and tax revenue and have been the economic, social, and financial bedrock for governments and community living through generations.
What is a Family Business: A family business is a commercial establishment in which decision-making is vested in the hands of various generations of a family, bound together by blood ties, marriage, or adoption. They shape the company’s business vision and goals and are associated with the firm in a leadership or ownership capacity.
Major GDP contributors: In countries like Indonesia, India, and Germany, family businesses account for a substantial 48% to 74% of all manufacturing companies. They create millions of jobs through direct and indirect employment, injecting significant revenues from time to time. In India, family-run businesses contribute nearly $670 billion in revenues, or 25% of its GDP, while in Germany the numbers go up to a staggering $1.8 trillion or approximately 49% of the country’s GDP.
Types of Family Businesses: Family businesses can be of several types, ranging from small mom-and-pop entities to major regional players and global conglomerates.
- Some families serve as owner-managers, a business model that is common in emerging markets like India.
- Other families may function as promoter investors, where one or more family members are on the company board and provide an ownership perspective on management and overall strategy, capital allocation, and financial performance.
- A few others are large, passive shareholders, supported by family offices that manage investments and dividend allocations across locations.
Need for Family Business Consulting: In recent times, the world has witnessed a revolution on the regulatory, operational, and technology fronts. Under the new normal, family businesses realize the increasing need to be continually innovative, agile, and receptive to consumers to stay relevant.
It is here that BPX (Business Process Xperts)– the family business consulting group comes in. We work hand-in-hand with such businesses to help them preserve their goodwill and continue to grow. Understanding how family businesses work, we try to match our best practices and innovative solutions with the unique challenges and opportunities that these businesses might face.
Services BPX Offers:
BPX provides the following family business advisory services specially customized for all your business requirements:
Digital transformation is one of the key challenges and opportunities facing family businesses today. It can be defined as the adoption of digital technology to transform services or businesses, achieved by substituting non-digital or manual processes with digital ones or replacing older technology with newer digital tools. Family businesses worldwide are now increasingly adopting digital transformation and technology as business enablers, to keep pace with market disruptions and embark on a journey of change and growth.
A company’s digital transformation journey can be suitably crystallized as follows:
Building digital platforms on top of traditional business models: With contactless purchases and deliveries the new norm in the context of the COVID-19 pandemic, every family business needs to build its own digital/e-commerce setup now. It should ideally invest in a proprietary infrastructure to have total control over pricing, distribution, and customer relationships.
Regional focus & platform strategy: A significant number of big family businesses have a strong, existing relationship with their regions. They support region-centric social initiatives, capitalizing on their loyal employees and customer base. This historical connection with the regional ecosystem lays the foundation for testing new product ideas, services, and business models. Though digital giants like Amazon, Facebook, and Google have created customer-focused online platforms, they are not as much in sync with local surroundings as family businesses are. Family businesses have the advantage and opportunity to combine innovation and platform-scalability with their regional pre-eminence.
The below diagram illustrates the digital transformation roadmap:
- Family Business Succession and Continuity Planning
A family business can be an extremely successful and profitable business model. However, one of its biggest challenges is family business succession planning, which is a series of processes and systems in place for all major roles, functions, and locations during a transition of leadership. This ensures that the family business is not impacted during the changeover from one generation to the next, or someone outside the family due to a greater focus on professional operations. There are two main types of succession planning or continuity family business planning i.e. Succession of ownership and Succession in management.
Here are the key steps to create a succession planning family business:
Long term succession planning: If you’re a family business owner preparing for success in planning, the earlier you start planning for the transition, the better. Industry experts maintain that long-term succession planning spread over ten years is ideal since there are issues like estate planning, taxes, liability, ownership stake, and voting rights to take care of.
Right Professional Assistance: Proper succession planning entails working with the right family business succession plan consultants, who will guide you in:
- Due Diligence: Extensive information gathering about the family business, existing contracts, and other items integral to the succession plan are crucial to developing a reliable succession plan.
- Valuation of the Entire Business: The next generation needs to have a firm financial footing. Hence, a complete appraisal of all outstanding assets and debts is required.
- Developing the Plan: Once we get a list of all the family members having stakes in the company’s future, a set of contingencies defining each member’s assumed future business role can be developed. This includes ‘what if’ scenarios and future planning around unknown future variables.
- Restructuring for the Future: In some cases, the business has to be reorganized or restructured to prepare for the future. These changes could ultimately help to smoothen the entire process.
- Contract Renegotiation: Existing contracts may require adjustments to be made to the succession plan, while others might need the family business consultant to factor in a leadership change to ensure honoring of all contractual obligations during the transition.
- Lifetime Transfers: In ideal circumstances, a senior family business member oversees the succession process as it unfolds, and passes the business ownership baton to the next generation. The family business consultant will ensure tax compliance for the transition.
We are experienced family business succession planning consultants and use an industry-tested mechanism to assist families with business succession planning. BPX is committed to making sure that the people in control – i.e. the family’s next generation or external leaders remain supportive of their predecessors in the continuity family business consulting process
- Strategy & Operations
Standard Operating Procedures (SOPs): To keep strategy and operations agile in a family business environment, Standard Operating Procedures (SOPs) are essential. The lifeline of any organization, SOPs are instruction manuals laying down step-by-step instructions for various tasks. Digital, paperless SOPs is nowadays the norm, facilitating process automation, productivity improvements, and a reduction in error rates. Every department, i.e. HR, Purchase & Inventory, Sales, Marketing, Finance, Accounting & Taxation, Production, etc. have their own set of SOPs. Their key benefits are as follows:
Saves time and money for training employees: In the case of new joiners, SOPs facilitate a shorter learning curve. A structured template with all the necessary guidelines ensures quick learning.
Consistent Customer Experience (CX): SOPs ensure a smooth and consistent Customer Experience (CX) at every step, i.e. Presales, Point of purchase, and Post-sales.
Superior Performance culture: Behavior, products, processes, and services governed through SOPs gives rise to a high-quality performance culture.
Product Quality: Standardized procedures governed by SOPs help to weed out production anomalies that could impact overall quality, helping to maintain product consistency.
Employee and Performance Management: SOPs are used by managers to assign targets and evaluate employee performances. When a key stakeholder is unavailable, work doesn’t stop, and someone else can easily and quickly take over the tasks or operations by referring to the SOPs. Thus, family businesses need SOPs with clear, documented instructions to optimize work processes, job responsibilities, and products & services.
Here are the steps to develop a winning strategy & operational process:
Business and Strategy & Operations planning go hand in hand: A strategic plan is about setting business goals over the medium term and deciding the company’s focus areas and the process to reach there. A business plan is about specific actions to be taken over the next twelve months, to give shape to the strategic plan and make it a reality. Hence, business and strategy planning complement each other.
Keeping future operative scenarios in mind: Family business leaders should always have a clear vision statement, i.e. they should know what the future looks like. They should then chalk out a strategy to get there – be it products and services, balance sheets, marketing, work culture, and the organization as a whole.
Evaluating the present: The current operative state of business should be continually assessed, whether it is a genuine competitive advantage, practicality of ambitions, things to be changed, etc. Techniques like SWOT can be used for internal evaluation, while PESTLE can determine major external market factors at work (Political/Economic/Social/Technological/Legal/Environmental). Porter’s Five Forces analysis can also point out the threat of new competitors, or potential new products, technology, or services that can take the market by storm.
Inviting regular inputs: Regular inputs about the family business’ operations and strategy is a must. Though the CEO drives the overall business mission and strategic plan, it is ultimately the employees whose contributions make a difference. People are generally more committed to something they’ve helped to create. Thus, regular, constructive feedback from skilled people, customers, and trusted external advisors and family business consultants become crucial.
Preparing for change: Change is the only constant in life. An extensive strategic planning process should challenge the current operative model and test its suitability for the next phase, otherwise, it is not doing its job. The family business should always be open to different options, and new, innovative approaches, staying agile and quickly adapting to changing scenarios.
Setting a timescale: Strategy and operations are like business schedules. Assigning timelines to reach the business milestones and the overall final destination, therefore, becomes critical.
Assigning responsibilities: The CEO and board should take ultimate ownership of the plan, but specific programs need to be owned, operated, and driven by appropriate managers, supported by the budget and resources necessary to succeed.
Translating the strategic plan into a business plan: There should be a marked transition from strategy to the business side of things by converting various phases into actionable programs, to be implemented in the immediate future.
Measure, monitor, and adapt: As the plan is being implemented, there should be a continuous assessment of its effectiveness, and whether it needs to be fine-tuned. KPIs should be used to evaluate and track progress. The 5 levels of agile planning (product vision, roadmap, release plan, iteration plan, and daily stand-up) are widely used nowadays in business projects.
Free-flowing communication: All stakeholders in the family business should be regularly updated about the developments and progress made in strategic programs and operational planning measures. This helps to build a shared sense of commitment, belonging, energy, and sense of direction.
Business Structuring & Governance
A good business structure and governance is vital for the family business to grow and prosper. Family business structure & governance is a system of processes put in place at the highest level of business, family, and ownership to make the best possible decisions concerning business direction, accountability, and control. In a well-developed family business, this involves understanding how the business and its governance structure interact with the family and its associated systems.
Three-circle governance model: To create an effective governance structure in a family business, three important areas have to be considered – the needs of the family, ownership, and business. Effective usage of family councils, family constitutions, and family boards will help set up a robust business structure and governance model. The following are the four pillars of family business governance:
Management: Just like for a normal employee, there should be a pre-defined rulebook specifying how family members can join the business and the required criteria for the same, i.e. experience, development, output, etc. Standard Operating Procedures (SOPs) should help to define reporting lines, performance expectations, and review processes, along with the communication and issue resolution structure.
Income: The rewards & recognition and development & progression programs for family members should be laid out. Rules also need to define the different roles for family members in the business, namely employees, directors, and/or owners. Employees need to be remunerated at market value, and non-executive directors paid in terms of directors’ fees. Owners should receive dividends under a pre-agreed dividend policy.
Control: Pre-defined rules should govern the decisions that managers, directors, and owners make, and be clearly defined, communicated, and adhered to. These rules could form a part of the Family Constitution, Business Policy, and Shareholders’ Agreements.
Fairness: The entire business structure and governance mechanism has to be drawn up and regulated to ensure fair governance. This includes director appointments, dividend payments, decision-making, transfer or sale of ownership interests, and business funding guidelines. These rules can be documented in the Shareholders’ Agreement or Family Arrangement deeds. The following chart shows the three-circle family and business system model:
Managing and running a family business is a delicate, balancing act. In this fast-paced world characterized by radical disruptions, family business consulting services become essential to facilitate decision-making and help grow and maintain a competitive advantage. As your ever-reliable family business advisory service provider, BPX (Business Process Xperts) can help you orchestrate your digital transformation, succession planning strategy, and governance journey every step of the way. No matter where your business is placed in its quest for success, we will always be at your side, offering valuable insights and solutions to help you reinvent yourself and move ahead.
To tap into all new-age growth opportunities, reach out to BPX experts today and watch your family business unlock its true business potential.