How family businesses can benefit from a family constitution

Geoff_SteerTNThe success of many small businesses is due to the commitment made by family members – sometimes generations of family members. Here, respected financial adviser Geoff Steer explains how a family constitution could help such SMEs.

The success of many small businesses is due to the commitment made by family members – sometimes generations of family members. Here, respected financial adviser Geoff Steer explains how a family constitution could help such SMEs.

However, family businesses pose many challenges, including balancing the different dynamics that may come into play between family members and non-related staff members.

A relatively recent but increasingly common means of addressing some of the issues unique to family businesses is the adoption of a family constitution. There is no standard form for a family constitution. However, common issues for consideration and documentation in a constitution may include:

  • The agreed family vision for the business.
  • The objective and outcomes desired.
  • Family members’ responsibilities, including strategic and operational roles.
  • Agreed and transparent remuneration arrangements.
  • Employer versus shareholder entitlements.
  • A succession plan or process.

Increasingly, family businesses are recognising the value of having an independent person either on the Board or as a trusted adviser. An independent person often helps to control the emotion that invariably flows in family situations, including business.Geoff_SteerLG

An external perspective can also be invaluable where family members spend most of their working hours, living and breathing the business issues. In putting together a family constitution, having an independent person drive and manage the process, and negotiate competing family interests can be an essential ingredient.

Geoff Steer is a Founding Partner of Matthews Steer Chartered Accountants and was recently ranked one of Australia’s top 10 financial advisors by The AFR.

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