How to keep a family-run business in line
Successful family businesses - ones that stand the test of time - find ways to resolve disputes and rivalries among family members and ensure that the leadership of the company is in capable hands. Sometimes this means non-family hands.
Although each family business has unique characteristics, there are recurring patterns. These include sibling rivalry, unwillingness of younger family members to work hard, nonproductive family members, and the classic parent's reluctance to "let go."
The patterns of behavior become gradually ingrained over a period of time. It takes a real effort to objectively assess the situation. Here are some tips:
Objectify the process and use experts for advice. While special considerations apply for a family business, good business practices should prevail in making business and compensation decisions. Getting legal and tax advice can help you structure a plan that makes sense for the business and reduces family conflicts.
One common area of conflict is compensation. Overpaying nonproductive family members has doomed many a business. To attract and retain key employees, family and non-family, compensation and retirement plans should be designed to reward the behavior that makes the company successful, not just provide family member "entitlement."
Another common area of conflict is between family members who actively work in the business and non-employee family members. If not addressed, this type of conflict can undermine the business and destroy family relationships. One approach is to limit the role of non-employee family members and use life insurance and other means to provide financial security for non-employee family members. This approach keeps the business decisions in the hands of the family members who are actively working in the business.
Assess which family members can successfully run the business. Based on your answers to the following questions, you can make an informed judgment about whether it is realistic to transfer management to family members.
• Do family members have clear roles and responsibilities?
• Do non-family members respect family members for their contribution to the business?
• Are there conflicts among family members that affect the business?
• Do family members feel fairly treated?
• Are family members fairly compensated for their contributions to the business?
• How does family compensation compare with non-family employee compensation?
Putting your long-term goals in writing is a critical step in clarifying your thinking and driving the planning process. Answering the following questions will help you establish a framework for planning:
• Do you plan to retire? At what age?
• Do you plan to transfer ownership and/or management within the family?
• Do you plan to transfer ownership and/or management to employees?
• Do you plan to sell the business?
The plan can be reviewed, discussed and revised over time. It is essential to put the plan in writing because people have selective memories, and memory fades with time. The importance of communication, and more communication, about the plan among family members cannot be overstated.
The written plan becomes a roadmap for the parties and can be invaluable in the event of a crisis such as owner illness or death. It is truly a kindness to your survivors to lay out a plan that minimizes disruption to the business, the family's primary source of income.
Being objective about family members is difficult to impossible. Using business planning methodologies and advisors can help to make the process more objective and reduce the emotional fallout within the family.
Jean D. Sifleet, is a business attorney, CPA, three-time entrepreneur and author. As a member of the business practice group of the Worcester-based law firm Hassett & Donnelly PC, Sifleet focuses on counseling privately held companies on a broad range of business matters.
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