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Bringing the family business community together

Managing Growth Of The Family Firm

9th December 2016 Penny Lovell, Close Brothers Asset Management

Embarking on any business venture can be uncertain and the same can certainly be said for family businesses.

Entrepreneurs creating businesses may end up being first generation family business owners and over time, as the business grows, there will be challenges to these family firms. These issues are often similar to those their non-family business counterparts have to address.

Penny Lovell, head of private clients at Close Brothers Asset Management looks at two of the key issues that have to be addressed, how to maintain family culture as the business expands and how to manage the finances when the business expands:

How to maintain family culture as the business expands

Although it is often difficult for the founder to relinquish some control over their ‘baby’, as the business grows there will not be enough time for them to take responsibility for everything. Business development, production, operations, marketing, financial management and HR etc. and inevitably people must be added to the team. 

Care needs to be taken to recruit the right people with the right skills to work in the organisation. However, having spoken to many family business owners over the years, and more recently as part of a Family Business Roadshow across the country, it is clear that the ones that are most successful strive to bring in the best people for the role, be they family members or not… Developing a core, competent team will help to ensure the business has the right management in place to continue to grow.

However, non-family directors and employees will not have the same family heritage and beliefs so it is important that they understand the values and culture of the organisation from the start, even though the culture could undoubtedly evolve and change over time.

There are some steps that will help to ensure that the culture is retained such as:

  • Having a clearly articulated vision for the business

  • Clearly communicating the core family values and incorporating these into the way the firm operates

  • Developing a clear brand that incorporates the values

  • Living the values in the business on a daily basis, leading by example and bringing the family culture to life

  • Undertaking a clear induction process that includes a brief history of the business, how it all began and the vision for the future

  • Evolve the culture with the business and grow them together

  • Create the right environment to reflect the culture within

  • Clearly communicate to all stakeholders on a regular basis in a consistent manner


How to manage the finances when the business expands

As the business grows there will be challenges and one of the key areas of concern for any business owner is financing the growth – new staff, new procedures, new systems, new commitments all cost the business money and care needs to be exercised to ensure the right finance is acquired to support this growth. 

When expanding, it is crucial to consider long term financial planning for the benefit of all employees. Sound planning advice can help support family businesses as they continue to recruit new staff and can offer guidance on setting up auto-enrolment pension schemes and additional employee schemes, which can be vital to boosting staff morale.

First and foremost, detailed and realistic plans and forecasts need to be drawn up prior to an integrated financial forecast to assess and identify any funding needs.  This plan can then be used to discuss the financial needs with an adviser who can then help in determining the right finance needs for the business as it expands. 

It is important to prepare a robust financial plan and to consider:

  • Developing an appropriate finance team or appointing someone to take full ownership and responsibility for the finances

  • Managing cash - cash is king so credit control is vital to bring the cash into the business from customers

  • Consider all of the finance options available and consider the best and most cost effective way to finance the growth (asset finance, loans, overdrafts, motor finance, grants etc.) of the business

  • Consider the use of invoice discounting to generate funds earlier

  • Make use of any overnight deposit arrangements to make the most of any cash available

  • Introduce regular review meetings to manage the actual financial plan against the budget and review as necessary

  • Consider all expenditure requests to make sure that when cash is tight the business is funding the essential business needs

Growing a business can be both an exciting and a daunting time for anyone, and in a family business there is often the added pressure associated with having your name above the door, or in the event of the second, third or later generations, not wanting to be the generation that make the wrong decision too.  

Nowadays, firms need to be ahead of their competitors and to have a clear USP that helps in their endeavours and the family culture. When developed and integrated accordingly this can be a clear differentiator for them.

Family firms with the right governance, the right values at the core of what they do and the right finances in place to grow are essential to the UK economy and part of what makes businesses across the UK so great!

About the Author - Penny Lovell is Head of Private Clients at Close Brothers.
For more information please vist www.bespoke.closebrothersam.com

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