Written by Alan Naditz and published in the June/July edition of myBusiness magazine.

Mistakes are an everyday part of running a small business. There are bookkeeping miscues, quality control problems and just plain human errors. While these problems hinder profit, by themselves they’re not likely to ruin your business.

Some mistakes, though, are unique to a family business. And these mistakes, such as the lack of a succession plan, employing an unproductive family member or failing to assure proper communication within the ranks, can prove dangerous to the continuation of your business.

According to Roger Warrum, president of the National Center for Family Business in Hudson, Ohio, these types of errors are a major reason most family businesses fail to make it to a second generation. Warrum — whose business specializes in helping family-run firms solve operational difficulties — says these mistakes could be reduced or eliminated with proper planning, something many business owners simply don’t do.
Here’s what Warrum identifies as five of the biggest managerial mistakes made by today’s family businesses and how several companies solved or prevented them.

Poor communication

Misunderstandings and disagreements resulting from bad communication are second only to death of the founder for demise of a family business, Warrum says. Poor communication is more destructive in family-run firms because of the feelings involved.

One problem is the definition of “communication,” according to Warrum. Often, it stems from the company founder — usually the father — who never changed his technique as the business and the family grew up. “Dad’s been communicating with his kids in one manner since they were two feet high,” Warrum says. “For him, it’s always been, ‘I talk, you listen, we’re communicating.’ ”

Linda Center knows that feeling. In 1983, she joined her parent’s measuring instruments distributorship. Her brother, Wayne Fetman, had been on board for eight years. For a few years things were fine. But by 1992, Center’s and Fetman’s efforts to move the company forward were falling on deaf ears. “We tried to communicate the need for change, but my father wasn’t capable of passing on the authority to let us make the changes to keep the business successful,” Center says.

With their mother’s help, Center and Fetman split from their father, opening their own company. Their father stayed in business, but Center and Fetman’s relationship with him remains strained.

“My father wanted too much control,” says Center, now co-owner of the 11-person JLW Instruments Inc., which distributes pressure, temperature and force measurement systems in Chicago. “He couldn’t let go of the business, and had to always have the last word. It was a very painful separation, but it was something we felt we had to do.”

Center says much of the pressure might have been alleviated if her father had conducted family business meetings. She and Fetman regularly hold such meetings at JLW to ensure everyone’s opinion is known. “You cannot grow your business to the next level without some method of good communication,” Center says. “There’s no way to focus on goals or aim for that light at the end of the tunnel.”

Holding Family To Different Standards

Knowing where you want to go with a family business hinges on knowing if you have a “family business” or a “business family,” Warrum says. A business family describes a company that just happens to be run by a family. A family business means the family sees itself in business primarily to support and feed its family members, says Warrum.

Employed family members have to know what’s expected of them, with clear performance markers, and being required to start at the bottom of the company or work outside the firm for a few years before coming into the fold, he says.

That concept is the norm at San Antonio-based A-Tex Pools & Billiard Supply, which sells swimming pool supplies and billiard equipment. According to Joann Constantin, none of the second-generation family members — which include her husband, brother-in-law, a cousin and herself — walked into positions of power. “My dad is big on the philosophy that you have to work your way in, not just come in and sit behind a desk with a title,” Constantin says. “We’re also big on setting an example. Once you hold the reins, it doesn’t mean you’re too big to hold the vacuum.”

Constantin went to college and studied marketing before returning to the roost. “It was the best thing I could have done, because it prepared me to work here in the long run,” she says.

Paying Relatives To Not Work

One of Warrum’s favorite statements deals with a third major family business problem: keeping unproductive employees because they are family. In Family Business Misstakes (Family Business Journal, $19.95), he writes “to pay someone who is not doing the job is unfortunate. To pay someone who is not doing the work is stupid.”

Yet many small businesses do just that, Warrum adds. “I’ve seen businesses where the parents pay their kids to stay home,” he says. “They don’t want their kids at the business because they know they’re not capable of handling it. At the same time, they feel responsible and that they must do something to help the kids.”

While all parents wants to see their children succeed — especially if it’s in the family business — it’s important for the business owner to realize that if the family member doesn’t make the cut, he or she needs to be cut loose, Warrum stresses.

“It’s a case of being honest with yourself and your kids,” Warrum says. “Until you cut the dead weight loose, you’re only hurting everyone.”

Failing To Plan For Act II

Another business-killer is lack of a designated heir, according to Warrum. Business owners with more than one child in the company must decide who, if anyone, takes the reins when Mom or Dad steps down or dies. And the death tax, which NFIB is working hard to repeal permanently, sinks many small businesses before they can be passed on to the next generation. (See the “Issues” section of NFIB for more information.) That’s why succession planning should be a priority once an owner feels he or she is within 10 years of retirement, Warrum says.

Frieda Rapoport Caplan says she began considering a successor in the early 1980s, about 20 years after she founded Frieda’s, an exotic produce marketing firm in Los Alamitos, Calif. Rapoport Caplan’s two daughters, Karen Caplan and Jackie Caplan Wiggins, had worked under her for several years and seemed capable of running it. In 1986, she sold the business to both of them.

“They’re a perfect combination,” Rapoport Caplan says. “Karen is the long-term visionary, while Jackie is the implementer, working on the day-to-day elements of running the business.”

Deciding which of her daughters would lead the company required Rapoport Caplan to carefully consider the talents of each; she remains on board as chairman.

Successful succession planning starts by hammering out the financial issues of transferring ownership, Warrum says. Once insurance and tax issues are settled, focus on transferring your skills that are vital to the company’s success to a designated successor. Thoughtful planning is needed to make the process work, and often outside advisors are helpful to walk you through the process, Warrum says.

Not Preparing For Life

Nothing lasts forever — but small business owners want to believe it will, says Warrum. Whether it’s divorce or other life changing events, small business owners need to have a “just-in-case” scenario in place to ensure the company’s survival.

When David and Karen Geary started the DL Geary Brewing Co., in 1984, both were focused on owning their own microbrewery. When they divorced five years later, that focus didn’t change. Despite the dissolution of their 20-year marriage, the two still run the 25-employee beer making company, having divided ownership equally.

“Initially it was tough. But the alternative — to sink the business because of the divorce — was unacceptable to both of us,” says David Geary. “We both relied on Geary Brewing for our income and the practical thing to do was to leave the personal stuff aside and get on with the business. So that’s what we did.”

Less successful splits happen if one spouse is not aware of the other’s role in the company. And the continuation of any business can be threatened by unexpected crises, from a business partner’s unexpected death to a natural disaster.

Key to survival is planning for any crisis, says Jeffrey Caponigro, author of The Crisis Counselor (Contemporary Books, $16). Your plan, to be reviewed each year, should make clear who is responsible should the founder, other partner or key player exit the company for any reason. And that plan needs to be written down and communicated to others in the company, he advises.

Geary agrees, emphasizing the need to plan for such “worst-case” events. “It’s a lot easier to hammer out a deal while everybody’s still in love,” he says.