There’s an old story of a soldier who got up every morning, walked over to an unused iron stove in the middle of the barracks and gave it a swift kick. Then he’d hop around in pain and yell at the stove. When a fellow soldier asked him why he did such a thing, he said it was “tradition.” His father kicked the family stove every morning and so he did the same. There might have been a time when kicking the stove served a purpose but it had long since been forgotten. All that was left was the habit and the pain it caused.
Family business owners may not go around kicking iron stoves, but some operate with the same philosophy. Without examining the cost or consequences, they continue certain practices just because that’s the way their ancestors did it. But what worked for Grandpa may be causing the present-day company to lose money.
Time for a Check-Up?
Although family businesses can enjoy the benefits of shared vision and values, those advantages can be lost when a company gets mired in tradition and is unable to see when a practice no longer makes business sense. That’s why periodic check-ups are more important for family-run businesses than for other enterprises.
If it’s time for your company to go under the microscope, here are a few areas to consider:
- Are the vendors you’ve used for years still serving you well with timely deliveries and competitive prices?
- Are your credit policies effective in keeping the cash flowing in — or do you tolerate slow payers because they’ve been on your customer list for decades?
- Are you using the best shipping methods for your company — or just doing it the way your father or grandfather did?
- What about family members on your staff? Are they still pulling their weight … or just pulling down paychecks?
Lovable “Uncle Billy”
The failure to re-evaluate job descriptions periodically is one of the reasons so many family companies do not realize their profit potential. Consider the lovable but absent-minded “Uncle Billy” in the movie, It’s a Wonderful Life. He spent his life working in the family building and loan business — in a job he probably wasn’t suited for in the first place. Over the years, he may have cost the company a bundle with minor errors. And at a critical time, one giant mistake almost ended in business and personal disaster for the whole family.
In today’s competitive business environment, it just doesn’t make sense to employ Uncle Billy. Obviously, businesspeople need to seek the best qualified staff for the money. Despite this necessity, relatives who do little work may still feel entitled to their jobs and often at higher rates of pay than market forces demand. If this sounds like your company, it may be tempting to keep some relatives on the payroll in order to avoid conflict. After all, family is forever and although you can fire your belligerent cousin, you may still have to sit between him and his mother at Thanksgiving dinner. But, like an engine full of sludgy oil, family member-employees with bad attitudes, poor skills and unrealistic expectations may be bogging down the operation, costing money and inviting eventual disaster.
You May Need an Outsider
If you dread the prospect of facing down an Uncle Billy or changing a policy started by Grandpa, it might be time to ask for outside help. Your family business adviser can give you an objective evaluation of your staff operating practices to see if they still make business sense. Of course, the decision is still yours, but you don’t want to lose sight of the reasons why you are in business in the first place and, in the process, risk shutting your doors forever.
We are here to assist if you have questions or concerns! Please reach out to your Pugh CPAs business advisor.