Two thirds of SME businesses in the UK are family owned, so it's clearly a popular business model. But...only 30% will successfully pass to the second generation (and only 12% to the third and 3% to the fourth)...

"It is only but three generations from shirtsleeves to shirtsleeves"  is an old American saying that describes this phenomenon.

There will sometimes be good reasons why selling up or getting out suits everyone involved. But more often family businesses fail to make it through the generations (or sell successfully at the right moment) because of misunderstandings and poor communications among a family group who end up make wrong assumptions about their collective and individual aspirations and expectations.

The same can happen in any business with a number of stakeholders, but it can be especially painful in a family situation, where personal relationships that really matter can be damaged sometimes beyond repair.

What can you do to avert potential conflicts in your family business?

Conflict mainly arises over succession issues - and the latest PWC statistics quoted above show the problem, and the emotional and financial damage that may result, is very common.

Working with your family to create a Family Charter, sometimes called a Family Constitution, can be a rewarding way of deciding amongst you what it means to be part of the Family Business, and what you want out of it or are prepared to give to it, collectively and individually.

The process is often as important as the end result, especially if it allows family members to express what might have previously remained unsaid, in a constructive way that builds or rebuilds trust and a sense of common purpose and understanding.

Your Family Charter

What your Family Charter could look like is a matter for you, but the good ones we have seen and helped to create have been about 'values' - simple statements of core beliefs that underpin and help define the culture of your family business, and your expectations about what it means to be involved in it.

You may end up selling your business anyway, or closing it down as you retire if there is nobody to take it over from you, but a Family Charter will help to make it clear and align personal, family and business interests (or at least show how you can get back into alignment). Research confirms you are likely to be more successful in business terms, but you will also most probably be a great deal happier along the way.

Getting started on the process of developing a Family Charter can be a challenge. In my experience clients often wait until there is already some tension within the family, usually related to succession.

In the next edition, we will give you some thoughts on how to begin, and highlight some of the topics you might want to discuss as you develop your Family Charter.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.