Three Circle Model of Family Business

Evanna Phoon wrote the below article and she is a Senior Franchisee of Rockwills. She can be contacted at info@malaysiawills.com

This article appeared in Malaysia SME magazine.

Rockwills, ROckwills Malaysia, Will Writing

In this session, we’ll explore more on The Family Business System (the three circle model of family business).

Rockwills, Rockwills Malaysia, Will Writing

Picture #1: Three Circle Model of Family Business.

Item Description Example
1 Family Members not involved in the business A newborn grandchild or an old great-grandmother of the family
2 Non-family/business owners Friends or business partners that are shareholders of a company but not involved in running the business
3 Non-family employees Employees that has no relationship with the family
4 Family owners not working in the business A wife of a businessman who only own shares of the company but not involved in the business
5 Non-family members who worked and own shares in the business Friends or business partners that are shareholders of a company and also involve in running the business
6. Family members who work in the business but are not business owners A cousin that works as an accountant in the company but doesn’t own any shares
7 Family owners who work in the business Normally this is the founder of the business who takes on three different roles, family, owner of business and also runs the business

As you can slowly analyse and see the three circles, it very complicated and it involves a lot of parties and the ability to balance each and every aspect challenges the wisdom of the founder.

If business owners are too focus on the business circle, what happens is you are not able to attach emotions to your business or in other words, you are not able to detach your personal family’s consideration from the business. For example, if your children or spouse say give feedback that for this year, they want to take a family overseas trip for Chinese New Year, you might not want to listen and go ahead by throwing a huge gala dinner (like previous years) because this is a good time to build relationship with your customers, vendors or suppliers and more business opportunities will emerge from this type of event.

If the business owners are too focus on the family circle. You won’t have separation between business and family activities. For example, you have two children who works in your company, both are same ranking in position; both are commanding the same pay. But one child comes to work from 9 to 5 like the other employees, and another child only comes in after lunch and leaves at 4pm and doesn’t work as hard. And you let the second child continue his or her behaviour all this while. Sooner or later, negative feelings will start to grow and you will have a family dispute among two siblings.

Next is ownership circle, How do you co-ordinate the shareholding of the company when you are no longer around? One way is to tie the share of the company up instead of splitting out to children. This is done by transferring your company share to a trustee company and sit down with the professionals to draft out a detail trust deed.

A slight pause here, some business owners would ask at which point should a founder starts to plan for family succession or business continuity. There’s no fix question but it is generally, it’ll be 10 years after the business started. The rationale behind it is that business that can sustain for 10 years are profitable and there’s wealth to pass on to next generation.

If the business is just starting out and the founder will be busy thinking of ways to get more business, then he or she will not have time to think about this planning. Similarly, if the business is not profitable and the founder plan to discontinue the business at his generation, then, planning for this is obviously not in his or her mind.

So, if your business is already 10 years and profitable or has potential to be profitable, and while you are still healthy and able to make decision, this is the right time to look closely into this three circles and start to ask questions regarding planning for a business continuation or family succession.

More interesting sharing the next issue… Stay Tuned.

 

About the Author:

MalaysiaWills CEO Evanna Phoon

Evanna Phoon is CEO & Founder of www.MalaysiaWills.com, Malaysia’s first online will writing service provider for Rockwills Corporation Sdn Bhd & as-Salihin Trustee Bhd. She can be contacted via info@malaysiawills.com.

 

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Monday, September 10th, 2012 article

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