It's all relative

Family companies are big business today. The U.S. Department of Commerce estimates that there are currently 10 million such businesses operating in the nation, many of which are in the retail industry. However, building a family business "legacy" is a complex and difficult task.

According to Family Business Review editor Joseph Astrachan, the typical life expectancy of a family-operated store or other entity is 20 to 25 years. Only 30 percent of family-owned businesses survive to be run by a second generation; 10 percent make it to a third generation and a mere 3 percent to a fourth. Family-related issues, which may include inter-generational conflicts, relationship/emotional stress, sibling rivalry, expectations that do not jibe with reality and questions regarding transfer of ownership, are partially responsible for these poor survival rates. Business issues, among them resistance to technology, tax woes and lack of a succession plan, play a significant role as well.

Yet, just because a toy business is family-owned does not mean it is automatically destined to rank among the 97 percent of family-run organizations that do not enjoy long-term viability. Retailers can take a number of steps aimed not only at survival, but success.

Ongoing, honest communication tops the list, with business issues remaining the focus at work and family matters discussed at home. Family members' roles, ranging from detailed job descriptions to performance goals and compensation, must be clearly specified and committed to paper. Furthermore, if multiple family members are involved in the business, establishing a career development methodology is advisable. Participation in weekly management meetings should be mandatory, and management must ascertain that all family members clearly comprehend every plan set forth for the respective venue.

Matching family members' roles to their experiences, abilities and personal goals is equally critical. Operations run far more smoothly when all parties involved understand each others' wants, needs and future expectations. Equitable financial solutions for those who do not wish to actively participate must be identified (for example, ownership status with no voting ability or other methods of sharing in the "estate").

Owners must also devise a business plan aimed at achieving their vision for the enterprise, as well as specifying contingencies in case of unexpected illness or death. Communicating a formal plan leaves no leeway for confusion or disputes concerning who assumes the reins following an emergency.

When creating the business plan, the evolution of family members' skill sets, managerial acumen and leadership experience merit consideration. Provisions for education, work experience outside the company and/or the assumption of different roles within the enterprise might be included. For best results, all family members must "buy in" to the plan and, accordingly, actively participate in its conception.

Involving key non-family members in the planning process is also wise. In fact, merchants would do well to go one step further, appointing an outside advisory board comprising tax advisors/accountants, legal counsel, local lenders, consultants and/or other area businesspersons. Such individuals can provide an unbiased perspective, thereby helping to expedite goal fulfillment.

Business visions and strategies are then easily formulated, leading to the preparation of a solid business plan that takes into account critical succession plans. Additionally, with an advisory board in place, potentially damaging emotional reactions can be eliminated from the equation.

Should their venture fail, family members lose more than their job; they often sacrifice much of their personal wealth. Only by treating their operations with the same eye toward business as public companies do, can they ensure survival for the short and long term alike.