How to Balance Family And Business Goals

When conflict occurs in the family run business, it can be traced to a disparity in the goals of the individuals, the family or the business. Perhaps a family member works in the business out of economic necessity, not because he or she wants to. Or perhaps the potential successor has plans for the family run business that differ from current management plans--different generations usually have different goals. Whatever the cause, the conflict must be addressed and resolved to avoid and prevent more serious problems later.

One way to define and align family and business goals is through business and family strategic planning. In these plans, you will create a mission statement for the business and for the family that allows each element to complement the other. Once you have completed this task, set goals for the family business that will allow the family and business to prosper. Next, develop a strategy to accomplish these goals and, finally, formulate policies and procedures that control the family's involvement in the business.

Business Strategic Planning

Strategic planning for family-owned businesses requires that you integrate family issues, such as:

What are the long-term personal and professional goals of family members?

What is the family mission? Why are you committed to establishing and operating the business?

How do you envision the firm in the future?

Will family members be active in management or will they be passive members?

How will issues such as compensation, benefits and performance evaluation be handled?

The answers to these questions will affect the business strategy and should be resolved before strategic planning begins.

Strategic planning involves analyzing the family run business in its environment and devising a process for guiding its development and success in the future. This process involves assessing the internal operations and the current external environment (i.e., economic, technological, social and political forces) that affect the business. To begin this process, identify internal strengths and weaknesses that may constrain or support a strategy. Components of this assessment include (1) the organizational structure, (2) the culture and (3) the resources. Make a list of the opportunities available (growth, new markets, a change in regulations) and the threats (increased competition, shortage of raw materials, price cutting) to your business. This should give you some insight into the current situation and provide a strategic direction.

Next, list the objectives of you and your family, identifying personal needs and risk orientation. Many of these objectives and goals will be addressed in your family strategic plan. Also, you will find that your personal objectives will affect the strategy you choose. For example, if there is a great opportunity for growth in your market but you have a low risk orientation and a high personal need for security, you probably should not pursue high growth. It would be not only risky but also expensive. Growth consumes cash, and cash must be generated internally or financed externally. Your personal objectives should mesh with your strategy.

Once you have identified opportunities in the industry, assessed the strengths and weaknesses of the firm and listed your personal objectives, you can proceed with the strategic plan. This will involve

developing a mission statement,

setting objectives,

developing strategies to meet objectives, and

developing action steps to implement the strategy.

Mission Statement

The mission statement answers the question "What business are you in?" It defines your customers and explains why you are in business. The mission statement embodies the heart of the business and gives direction to every facet of the business. Effective mission statements

include specifications that allow measurement,

establish the individuality of the firm,

define the business in which the firm wants to be involved,

are relevant to all with a stake in the firm, and

are exciting and inspiring.

Objectives

You should set reasonable objectives for the firm, based on the mission statement, to ensure accomplishment of the firm's mission. Objectives should be clearly stated, realistic, measurable, time specific and challenging. Objectives can be created for:

revenue growth,

earnings growth,

sales and market share growth,

new plants or stores, and

product/service quality or corporate image.

Strategies

Strategies are determined by your answer to the earlier question: "What will the firm be like in the future?" Your strategic options include the following:

Stability--success is derived from little change (rare).

Profit strategy--sacrifice future growth for profits today.

Growth strategy--growth may be achieved through vertical integration (expansion from within), horizontal integration (buy a competitor), diversification, merger or retrenchment (turnaround or divestment).

Action Steps

Once the strategy is selected, action steps should be specified that will guide the firm's daily activities. An example of an action step is creating a budget to project the costs of a strategy. This process also is known as tactical planning. The steps in tactical planning should be practical and easy to implement and account for; their purpose is to convert goals into manageable, realistic steps that can be individually implemented.

Family Strategic Planning

The entire family should develop a mission statement or creed that defines why it is committed to the business. By sharing priorities, strengths and weaknesses, and the contribution each member can make to the business, the family will begin to create a unified vision of the firm. This vision will include personal goals and career objectives.

An important issue to consider is how to set priorities for the family and the business, i.e., decide which will come first, the family or the business. How you answer this question will influence your planning. Some family members will opt for the business first, reasoning that, without a business, there will be no financial security for the family. Others will opt for the family first, reasoning that no business is worth the loss of family harmony. A third alternative is to serve both family and business perhaps not equally, but as fairly as possible. Under this alternative, all decisions are made to satisfy both family and business objectives. For example, a family may have a policy that any family member may join the business, but he or she must meet the requirements of the job. You may find this is the best alternative because it forces a commitment to both the family and the business.

Why do some Business managers hit the gain goal more often than others? They do it because they keep their performance pointed in
this direction - management of profit making. They never lose sight of the goal - to complete the year with a profit.

This manual Gives suggestions which should enable an owner-manager to zero on profit making. It points out that you have to keep
educated, make timely decisions, and take action. In effect you must control the actions of your organization instead of being
controlled by them.

Topnotch Performance in golfing, shooting, and fishing requires knowledge, practice, and perseverance.

Similarly, in Small businesses, year-end profit arrives to the owner-manager who tries for topnotch performance. You achieve
profit making targets by knowing your operation, by practicing the craft of making timely, balanced judgments and by controlling
the company's activities.

Adapt the Suggestions in this manual to your situation. They should allow you to call the shots to maintain your business headed
in the ideal direction - toward profit making.

First Rule of Gain Making: Know Your Business. The Time-honored truth"Knowledge is power" is particularly pertinent to this
owner-manager of a small business. To maintain your company pointed toward gain you must keep yourself well informed about it. You
have to know how the organization is doing before you can improve its performance. You have to understand its weak points before
you can correct them. A number of the information you require you pick up from daily personal monitoring, but documents should be
your principal source of advice about gains, costs, and sales.

Know Your Profit. The profit and loss statement (or income Statement) prepared frequently each month or each quarter from your
accountant is one of the most essential indicators of your company's worth and wellbeing. You should make certain that this
statement contains all of the details you will need for evaluating your profit. This statement must pinpoint each revenue and
price area. For example, it should show the gain and loss for all your products and product lines as well as the profit and loss
for your whole operation.

It is a good Thought to have your own profit and loss statement prepared so that it shows each item for the current interval, for
the same period last year, and also for the present year-to-date. For instance, a P&L announcement for the month of November would
show income and expenses for the current month, for November this past year, and prices for the eleven months of the current year.
Many businesses publish their annual reports with a few previous decades therefore stockholders can compare earnings.

Comparison is The key to using your P&L statement. If your accountant isn't already furnishing figures that you may compare, you
should discuss the possibility of having them provided.

Financial Ratios from the balance sheet also allow you to understand if your gain is exactly what it should be. As an instance,
the proportion of net worth (return on investment ratio) reveals what the business brought on the equity capital invested.

Know Your Costs. An owner-manager ought to understand costs in detail. Then, you can compare your price figures as a percentage of
sales (operating ratio). Be sure your costs are itemized so you can put your fingers on the ones that appear to be rising or
falling according to your experience and the price figures of your own industry. When costs are itemized, you are able to spot the
culprit when the overall figure is higher than what you had budgeted. Take advertising costs such as. It's possible to catch the
offender should you split out your advertising expenditures by product lines and from media. Additionally, a comprehensive check
of inquiry yields from advertisements will help to avoid unsuccessful books.

In understanding your Costs, keep in mind that the formula for profit is: Profit equals Sales minus Costs.

Know Your Product Markup. Be certain The pricing of your products provides a markup adequate for the kind of profit you expect to
achieve. You have to keep constantly informed on pricing since you need to adjust for increasing costs and at precisely the exact
same time keep prices competitive. Knowledge on your markup also can help you to run close outs with your eyes open. Continuing to
generate something that only a few clients desire is a powerful merchandising tool only when you use it on goal - for example, to
hold or draw buyers for other high markup solutions. Don't be afraid to drop a loser from your line.

Garbage-In, Garbage-Out. An Owner-manager should not fudge the documents. The acronym GIGO that the computer business uses is
accurate with manually kept records in addition to with machine-processed ones. When an owner-manager allows"garbage" to enter the
records, the accounts will contain"garbage." Reports need not be extensive but they must be accurate.

Search For Trends. Try not to look at one month's sales or Profit picture alone. The figures on your operating statements are
significant only when you set the picture in the ideal framework - which is, look in the figures from the context of what has
happened and what's very likely to happen. In that manner, you catch a downward trend before it gets out of control.

You should also Concern yourself with the figures behind the bucks - for instance, the amount Of units sold or the number of
orders. Insist on cost-per-unit statistics. The Fluctuation of the cost-per-unit can be more meaningful than just looking At the
dollar figures alone. Another idea would be to display these comparative Figures on graphs so that significant trends can be
viewed easily.

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