Strategy & Operations » How does the CFO role differ for family-owned businesses?

How does the CFO role differ for family-owned businesses?

Faz is a consultant CFO and Advisor to the Board at Diarough Group, a market leading manufacturer of diamonds and jewellery for the world’s leading luxury brands. Prior to this, he was the Chief Financial Officer at a global diamond manufacturer, and an M&A adviser at Deloitte and UBS Investment Bank.

Family-owned businesses often go unnoticed in the financial press, losing the competition for attention to large Plc’s and tech unicorns. But the sector, spanning across all industries from hospitality to retail to manufacturing, actually contributes to over 70 percent of the national GDP in the UK and 57 percent in the US. As such, they’re more relevant to our daily lives than we tend to be aware of.

Large family-owned businesses are defined as having over 250 employees or £500m in turnover. Together with their SME counterparts, they are vital to the functioning of supply chains, often playing hidden but essential roles in less glamorous sectors such as wholesale, construction and transportation.

CFO’s at large family firms face a different set of challenges than their peers within Plc’s or private equity owned businesses. Quite often, the personality traits of the family owners will play a large role in how they discharge their duties. Family businesses don’t face the same conflict of interest between shareholders and directors that exists in Plc’s or private equity, where the management of outside capital requires stricter corporate governance processes that tend to iron out individual idiosyncrasies.


How does the role of the CFO change for a family-owned business? 


Unlike CFO roles in Plc’s, which tend to be more consistent, within large family firms there is greater fluidity – often, the boundary between business interests and private interests is porous, with CFO’s also becoming involved in the broader management of the family’s outside investments.

 The flexibility of the role presents both opportunity and risk for a CFO. On the one hand, there is the scope to define the role oneself, expanding it into desired areas of interest (for example analytics, operations or commercial areas). On the other hand, the relative lack of definition means a CFO could become spread too thinly or suffer due to ambiguity over what expectations are.

Critical to a CFOs success is understanding the family and appreciating the fact that it can often be much more than a business to them – it can be part of their identity. To external CFOs who have not taken the time to understand, family decisions might not always appear rational, and it can often be a source of stress. Usually, however, when one understands the broader frame, and that the family may define value differently than a CFO is used to, the role becomes clearer and much more fruitful. Curiosity is therefore crucial for CFOs in these positions.


What are the upsides to being a CFO in a family-owned business?


Generally speaking, large family run firms often have a number of attractive characteristics, including strong ties to a local community, a sense of loyalty to staff and a longer-term investment horizon.

Combined with greater role scope, it’s easy to see the advantages for a CFO: the chance to exploit investment opportunities missed by Plc’s and private equity competitors who are often boxed in by shorter investment horizons; the chance to build deeper relationships; and the chance to shape the role in a way that fits your desires and aspirations.

Ambitious CFO’s have the opportunity for greater development and to build a broader and deeper network, which in turn can lead to greater future opportunities.


What are the challenges to being a CFO in a family-owned business?


The fact that it is more than a business to the family can lead to a number of challenges – emotions can often run high, clouding and exaggerating what can often be simple finance issues; the owners often don’t switch off and might expect their CFO to always be available; and, sometimes, a healthy conservatism can become resistance to change, leading to outdated ways of working, both within finance and elsewhere.

CFO’s need to have a broader set of soft skills in order to manage these challenges. It’s vital to be a good listener (often what you need to understand is between the lines), manage expectations honestly and develop strong persuasion skills.

The good news for an ambitious CFO is that development of these skills in such an environment is a huge plus – the same skills are needed to move at senior levels anywhere, and it can provide a strong edge over competition.


How should a CFO approach risk when working in a family-owned business?  


CFOs may find themselves dealing with owners that are taking too much risk, or those who are so resistant to change that they’re not taking enough risk. It is key for a CFO in these circumstances to provide the balance.

Scenario planning is vital. The ability to show what the P&L is likely to look like if the business continues as it is or explores alternative options. CFO’s need to be able to do this quickly and in real time – this means knowing and internalising the key business drivers well enough to engage in fruitful conversations with key individuals within the business.

Ultimately, however, success relies on building trust and this takes time. The most effective way to build lasting trust is through delivering what is promised consistently – no matter how good a CFO’s soft skills are, over time, deficiencies in hard skills will be exposed.

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