8 'red' flags to watch out for in a family business

by Armando "Butz" Bartolome

Posted at Mar 07 2014 04:46 PM | Updated as of Mar 10 2014 05:36 PM

Editor's note: The Business Mentor is a weekly business column by Armando "Butz" Bartolome, president of GMB Franchise Developers Inc. and chairman of the Association of Filipino Franchisers Inc.

MANILA, Philippines - For weeks, I have wanted to write on what can destroy a family business.

Let me explain why: My wife Lyndah and I began a business in 1993. Basically, we saw the need in harnessing the potential of many micro and small entrepreneurs. The Philippines has small and medium enterprises as the backbone of its economy. Most of these are family businesses. What the parents started is passed on to the siblings.

Our work entails mentoring all kinds of family businesses. In fact, our 28 years of experience in the Philippines can easily be a great source for telenovelas.

It was nice to see the growth of an enterprise. We get so thrilled like proud parents to witness the expansion from a hole-in-the-wall store to numerous branches. It is more so when we see the family business generating employment.

Establishing a family business is not a walk in the park. Many may have dreamed of finding the right formula. We have seen the hardships of the founders in turning the business into reality. Most, if not all, began in a crude fashion.

There was one client who started her family business from a pushcart. She, together with her eldest son who was 12 years old, would push the cart and position it in the marketplace in the evening. They would then go home around 2 in the morning.

Looking back, the mother could not complain with the many blessings that she received from her family business. She was able to put up a decent store of 100 square meters. Customers would drive all the way to buy her products. All her children became so involved in running the business. Everybody in the family absorbed her passion and perseverance. This became a common vision and shared with all employees.

On the other hand, I have seen several enterprises, which began as on one happy family, ending up as a disaster despite initial success.

One virus crept and affected the business. This virus is greed. Sad as it may be, in every family business, relationships need to be handled with utmost care. The parents need to trust all the family members. But we may wonder why there are siblings who would become greedy. It is also a mystery to me.

One way to curtail and prevent the surfacing of greed is to have regular open communication. Openness leads to complete understanding of each other and acceptance of what the character of each may be. Taking sides is definitely a no-no. Making matters worse is to compare each child with the other. Parents need to spell out the rules of engagement.

A tycoon in the Philippines has one big family.

In an interview, he was asked about his secret to maintaining a harmonious sibling relationship. You know what he said? There is and should only be one boss.

The family corporation elects the head. There are duties and responsibilities that go with the title. Respect, honor and complete support should be extended to whoever is the head. He is most right!

Here are the 8 Red Flags to look for:

1. Absence of dialogue. Members of the family are treated as employees. Every decision is confined to one person.

2. The members are forced to join the business. Instead of hiring outsiders, the members are expected to work in the business.

3. There are no clear-cut functions or responsibilities for each member.

4. Dividends are not shared and members get merely a salary.

5. Members are afraid to voice out their opinion about the business or even make a suggestion.

6. No policy on getting into business by other members.

7. Participation of in-laws is vague in the business

8. Succession is not in place.

9. Entry of the next generation is not defined.

For those who have a family business or in the early stage of planning one, I recommend sharing and discussing it with family members. Let issues be settled. Create and discuss policies among the members. Do not allow money to be thicker than blood.

For questions and more information, you may contact Armando "Butz" Bartolome by email: [email protected] His website is http://www.gmb.com.ph