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.
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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