The statistics about the longevity of family-owned businesses are quite sobering. Although 90% of all U.S. businesses are family owned, and they employ 60% of the workforce, most won’t survive past the second generation. There are many reasons why this is the case, but failing to engage trusted family advisors is certainly close to the top.
It’s important for all businesses to collaborate with trusted advisors such as CPAs, wealth managers, attorneys, and other professionals who have expertise in areas that are critical to long-term business success. The process of selecting those individuals is difficult for any organization, but it’s more challenging for family business owners, who often are reluctant to bring outsiders into the company’s inner circle.
The issue is typically one of trust. However, since trust isn’t just “earned,” but must be given, how do family business owners decide whom to allow into the “inner circle” of their families? Selecting trusted advisors based on gut instinct alone is not a prudent strategy. A Harvard Business Review article exploring the critical factors that contribute to trusting others suggests there are two parts to the equation: how easily you trust others as well as situational elements that can impact the decision to trust. The following is a brief assessment that can be helpful in exploring those situational factors:
- How secure do the parties feel?
- How many similarities are there between them?
- How well aligned are the parties’ interests?
- Does the trustee show benevolent concern?
- Is the trustee capable?
- Has the trustee shown predictability and integrity?
- Do the parties have good communication?
The more factors that score on the high end of the scale, the more likely the decision-maker (the business owner in this case) is to choose trust.
However, my experience working as a family business consultant suggests that it’s necessary to break down these issues into simpler and more practical questions to help make a good assessment of potential advisors’ trustworthiness.
Consider the following:
- Assess your values and those of the business.
- Clarify the relevant issues in your business.
- Determine if you’ll be comfortable with this advisor and his/her personal style —since this person will need to lead difficult discussions and help address your fears and concerns.
- Ask yourself whether you envision being responsive to a plan prepared by this advisor.
- Evaluate whether this advisor’s skills set and expertise are a good fit for you and your business.
- Ask yourself whether this advisor will respond with patience, understanding and sensitivity toward your concerns — traits that translate into trust.
It can also be instructive to ask yourself why you’re reluctant to bring in one or more trusted advisors. Unfortunately, many family business owners wait until they’re in crisis before turning outside the organization for help. It’s always best to be proactive, choosing trusted advisors who can guide you through issues like succession planning, tax-saving strategies and more in the absence of a “fire drill.”