Keeping it in the family has some points of difference

By Simon Peacocke

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New Zealand family businesses are thriving but there are some key survival strategies.

What distinguishes family businesses from other types of firm?

Family businesses think very long-term and are very resilient, much more so than non-family businesses.

Their relationships with staff and communities also tend to be different - closer, more connected, more loyal. Staff tend to become part of the family business and to stay on as long-term committed employees. While corporates like to be seen supporting their communities, family businesses generally don't promote that they are doing this - they just do it.

Another key distinguishing feature is depth of knowledge. Second- and third-generation family business members start their apprenticeship at a very young age. At 5-years-old they are hearing their parents talking about the business so they have an incredible depth of knowledge to draw on.

Are there more ethnic family businesses in Auckland because of the migrant population here?

Yes. We have seen a large number of family businesses started up by recent immigrants in the past 15 years.

They are very entrepreneurial people - immigrants from Southeast Asia, the Indian subcontinent and Fijian Indians - and also tend to be very family-oriented.

They have much in common with family businesses started by entrepreneurial Kiwis 30 to 70 years back. They share the same resilience, the long-term thinking, the focus on involving family in business and on building relationships around family. Ethnicity doesn't seem to make any difference to these traits.

We are seeing some established family businesses selling to become what we call "families in business", using the capital to diversify and grow other businesses.

What do family businesses do well?

They don't throw lots of money at things trying to get rich quick. They also have a powerful focus on building relationships with staff, customers and suppliers. Likewise, they are very good at retaining knowledge of their business and sector and perpetuating that through the generations.

What do they do badly?

There are two key areas where some, but certainly not all, family businesses have weaknesses. One is separating business governance from family governance.

The other key area is transfer of ownership. This can be challenging for family businesses because of poor communication of expectations between family members. You may see a mature son or daughter very keen to get involved in owning the business yet their parents are reticent because they've not talked about or thought through the next stage of their own lives and are not willing to let go.

Some family businesses do this exceptionally well, developing a plan early on that everyone is part of and aware of, carrying it out in a gradual and staged way.

How do they keep new family members involved?

It is extremely important to give family members challenges and opportunities to keep them involved and to grow the business. There are many ways of doing this such as children being given new ventures or roles to explore, or being sent to explore new overseas markets or to establish a new business in a different part of the country. BDO has devised a rule book for family businesses around this. For example, all family members should have work experience outside the business; family members should be employed on merit in positions they are qualified for; remuneration should be no more than the equivalent non-family member; and remuneration should not be confused with a return on share-ownership.

Simon Peacocke is managing partner of BDO Auckland and an accredited family business adviser.

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