THE CHALLENGE OF A FAMILY BUSINESS: SURVIVING THE SECOND GENERATION

THE CHALLENGE OF A FAMILY BUSINESS: SURVIVING THE SECOND GENERATION.

 

Andrés Budinich Vildósola.

More than 70% of the companies in the country are family businesses and less than 15% of these manage to transcend to the second generation.

 

The family business is characterized in general by being composed of a family group, which starts with one or more family members and it is planned or expected that future generations of the family integrate and participate in the company and its profits.

The family business is generally born as an enterprise that gradually expands and, with this expansion, its operation and risks become more complex, making its restructuring indispensable in order to continue growing in the most efficient and safe way possible, day by day. This is the natural evolution of the family business.

Part of the challenge of the Founder or the First Generation and the generations that continue to integrate into the family business, will be to consolidate what was created to not only maintain value, but increase it. This will imply that the family business will no longer evolve naturally but in a directed and intentional way. Increased complexity of business, greater commitment to applicable legal norms, increased exposure to risks of different nature, the need to implement more stringent regulatory compliance rules (both family and business), the need to visualize more deeply corporate, financial, labor and tax issues, in addition to the potential need to meet the standards of larger companies with which they operate or cross border challenges, make it clear that their development and survival, implies the need for adequate legal and business advice.

Therefore, it will be essential for this directed evolution to succeed, to have a system of clear instances and rules that regulate the relationship between family and business. Hence, the Family Corporate Governments and the Corporate Governments for the administration of the family business become relevant.

We have been able to observe that those companies that do not have adequate legal advice, assume the risk of failing in their attempt of expansion and generational transmission, or if they succeed, the difficulty and costs can be much greater. The great challenge of family businesses is to survive and professionalize in order to ensure maximum profitability and sustainability over time. In this process, the legal, audit and compliance input is key.

In this sense, time is key, even more so when looking to professionalize the family business of the venture started by the founder to the company that develops and integrates different generations of the family. Anticipate and be advised in advance to address questions that, although they may not be a reality in the present, will be in the not so distant future, such as: Who can participate in the family business? How to proceed? Everyone feels integrated but not everyone participates in the company? Can the spouses of my sons or daughters work in the company? How do I regulate it? Is the family ready in case the founder dies?

All these questions are legitimate and if not addressed in time and in advance, without a potential source of conflict, with sufficient scope to affect the company or the same flexibility and adaptability of the business family. Developing Board Meeting and /or Family Council, Family Protocol, Family Genogram and other tools, help solve these issues and are a good start to protect not only the family business assets but also the family human heritage, which is what moves to the first.