Family business: Should I stay or should I go?

33598383_m

I am working in the family business for my parents. I don’t have any shares and just general promises that someday it will be mine. I don’t agree with what my parents are doing and think they’re making some serious mistakes that could make this a tougher business in the future. What should I do?

THOUGHTS OF THE DAY: Kick them out. Leave. Work together to fix the problems. Decide how much you want to work in this business for the long term. Continue reading “Family business: Should I stay or should I go?”

Share

Family Businesses Need Succession Plans

We’re dealing with a family member who should be retiring. Unfortunately she still owns the stock and is very controlling. We want to take the company forward, but don’t have the authority to do that. She has done some estate planning with experts who don’t seem to recognize that control of the stock is essential for getting on with building the company’s future.

THOUGHTS OF THE DAY: Most small businesses don’t survive the first generation. Use shares to invest the next generation now. Figuring out how to secure the senior generation’s retirement can be a challenge. For business owners who have spent a lifetime managing their company’s profits in order to avoid paying taxes, tax planning can take on outsized importance. Confidence in the next generation’s ability to perform has to be earned.

Not having a succession plan for the business to survive its founder is a recipe for disaster. While 50 percent of business owners plan to pass the business on to the family, only 15 percent go from Gen 1 to Gen 2 and only 5 percent make it to Gen 3. Thirty percent plan to sell to employees, only 5 percent do. Forty percent of businesses close or liquidate.

It’s time for every owner to work out a solid business transition plan, while they still can.

Sharing ownership and control empowers and engages people. Use it to your advantage. Passing ownership to the next generation can be a loaded topic. For owners who have spent a lifetime running the company the way they wanted with little interference from anyone, giving up control is tough. Do it anyway.

Transitioning ownership is fundamental for the company’s long- term survival. Find people who want the business. Give them a stake in the future. Work up to giving them full control, using a timetable and a set of agreed-upon conditions.

Many worry they won’t have enough to live well in retirement. When the company has been the major source of income and assets have been plowed back into the company to keep things running, there may not be enough funds for retirement.

Build a plan to grow company revenue and profit significantly, to pay for Gen1’s retirement and Gen 2’s additional costs. Figure out what the senior generation actually needs to retire. Buy time by elongating the horizon over which those funds must be assembled. Budget funds for your primary task: securing retirement, building the company and transitioning ownership.

For business owners who have spent a lifetime avoiding paying taxes, it’s hard not to focus on the tax bite of transferring ownership. That concern may be overblown. When it comes to tax planning, things keep changing. Estate plans set up before 2014 need to be reviewed. Increasing amounts of value can be transferred tax free — more than $10 million per couple as of today’s writing. Even if taxes are due, it’s better to grow and pay taxes than to let the business fail trying to avoid them.

Start distributing ownership to those who want the business while you’re able to participate in the process. Limit ownership to people inside the business. Use insurance plans to care for family members whose interests lie elsewhere.

A business with a future has a broad, well-trained, highly invested management team. Most owners think it’s even better if some of that team comes from the family. Be certain the kids want the business before you begin a succession plan.

The family’s next generation faces big responsibility and takes big risks when they enter the business. They must match and then beat, the outcomes of their elders. They have to learn the business, plan for the future, take action, face risks and be accountable for outcomes. They must prove themselves worthy by demonstrating increasing skill at running the business. Confidence in the next generation’s ability to perform has to be earned.

Use a development plan with hurdles and rewards that defines how stock is transferred. As the next generation steps up, avoid decision making stalemates by making it clear through ownership who’s running the company.

Looking for a good book? “Small Business Ownership Mistakes: What You Don’t Know Will Destroy Your Business,” by Amy Rose Herricki.

 

Share

Working with a Spouse

It’s a family business, all right. My spouse is in the thick of it with me, pitching in wherever help is needed. Not only do we get to have breakfast together, but lunch and dinner, too. She has a lot of good advice, but sometimes she and I don’t see things eye to eye. And sometimes it feels way too close. Any suggestions for maintaining marital harmony as we deal with the ups and downs of our livelihood?

Thoughts of the Day: Know who’s responsible for what. Make sure the business can afford to support both of you. Be the diplomat, but settle disagreements, or agree to disagree. Have a written plan to follow, and hold each other accountable for meeting deadlines and standards. Regularly check in: is this what you both really want for work. Schedule down time and time away from the business.

Who’s business is it, anyway? Yours? Your spouse’s? Or equal shares? Decide, and issue voting shares of stock to confirm the decision. Then decide on an organization chart, and lines of authority. Who’s good at what? Think it through and make job assignments accordingly.

Once jobs and lines of authority are assigned, respect them. If it’s not your turf, don’t go butting in. If you think your partner is heading for trouble, ask if help is needed. Make suggestions, but back out if you’re asked to. Be willing to listen to your partner talk through challenges, without giving out orders about what to do next.

It can be really hard to let go and watch someone else make mistakes or struggle. Keep in mind, you’re not perfect, either. I’m sure you have your own laundry list of things that have gone wrong. Allow your partner freedom to experiment, get it wrong and figure out how to recover – that’s where the best learning can come from.

Listen attentively when a partner has something to say. Allow for differences in communication style: men and women tend to tackle problems differently. Set up rules for how to resolve disagreements, and then follow the rules. If you strongly disagree, get an outsider to provide advice and support.

Think about why you’re in the business together. I hope it’s because you both realize that 2 partners pulling together can grow a business significantly faster than 1 owner going it alone. Make sure that there’s enough revenue and profit to pay both your salaries. If one of you ends up working “for free”, that’s a warning sign that the business can’t support both of you. Consider having one of you take a sabbatical and get another job that pays better. Don’t put all of your eggs in one basket, if that basket isn’t strong enough to support you both.

Make sure you’re both heading in the same direction by writing out goals and plans for reaching those goals. Meet regularly to review the plans, to be sure the business is on track. Assign accountabilities in writing. When there’s disagreement or breakdown, set aside time to discuss it when you’re cool headed.

Conduct regular reviews with each other, just as you should do with employees. How is the job going? Is it still a fit? What do each of you want to learn about and do next? Train your replacements so that if either of you wants to step back you can. Make sure someone else can replace both of you, so if either of you gets sick, it’s not an emergency.

Regularly take time off from the business. Set a rule that no one talks about the business after a certain hour in the evening. Take weekends off. Plan vacations. Have a hobby to pursue outside the business. It’s important to recharge, especially when so much of the day to day conversation is likely to be focused on the business.

Looking for a good book? Sleeping with Your Business Partner: A Communication Toolkit for Couples in Business Together, by Becky L. Steward-Gross, Michael J. Gross.

pdf version

Share

The Ups and Downs of Managing a Family Business

My wife, my children and I own a business together. My wife and I started the business, and we’re delighted our children chose to join us. Unfortunately we don’t always see eye to eye about things. Any suggestions you have for managing a family owned business would be appreciated.

Family owned businesses are the predominant business form in the United States, in terms of numbers of businesses operating. The running of a family owned business can sometimes seem non-stop. From the time you get up, conversations at breakfast, the hours you spend at work, discussion over the dinner table, and even pillow talk at night, for many families the business never seems far away.

Keep things on track by being clear about where the business is going, how it is governed, who has decision making authority over which decisions. Keep the peace by respecting differences in decision making and actions, while monitoring what gets done and identifying where to pitch in to help. Recognize that businesses and people need to make mistakes to learn and grow – encourage risk taking within boundaries. Finally, remember, very little goes wrong that can’t be corrected – have patience and care for your business partners / family members.

If your family owned business is like most other businesses, you may talk about where you’re going, but there’s very little in writing. A clearly written set of short and long term goals can keep everyone headed in the same direction. An action plan, with specific next steps, dates and assignments can make it clear who will be doing what. Regular meetings to review progress can clarify what’s done, what’s next, and who might need help.

Use governing principles to guide the business:

  • set short and long term goals for all areas of the business
  • build specific action steps lists, so everyone is aware of what’s expected
  • meet weekly to review and update plans and action steps
  • set a growth rate of 15% year over year – and then hit it every year
  • focus on growing profits faster than revenue
  • maintain reserve funds worth 3+ months of expenses
  • build a forecast and a budget – and then use them to run the company
  • be able to sell half again as much as is needed each year
  • sell old products to new customers and new products to old customers
  • develop a multi-pronged marketing plan, measure payoff regularly
  • define the organization chart, responsibilities and pay structure
  • regularly review individual performance, in writing
  • ask each person to build and implement an individual education plan
  • define the exit strategy for the senior generation

By now, you may be thinking, this list sounds just like a list of governing principles for any business, not just family owned. That’s the point. Run it like any business, and the company will likely prosper.

One skill to practice, especially in a family owned business, is learning to keep your mouth shut and wait until your input is requested. It’s so tempting to interrupt when you see a need for advice. But if it’s not your area of responsibility, butting in may be seen as just that – un-asked for assistance that’s not welcome.

Parents especially have a desire to help their children by protecting them. Unfortunately in the world of business, like life, it’s often the rule: that which doesn’t kill you makes you stronger. Encourage people to build strength and skill by making mistakes and learning to recover.

Before you try to step in, ask yourself this: is what’s going on likely to permanently jeopardize the business in a major way. If the answer is, “No” or “Not likely”, then let things play out. If the answer is, “Yes”, or “Very possibly”, then call a meeting to discuss your concerns. If there’s serious disagreement, ask the group to participate in decisions about how far to go, and where to draw the line. And be prepared to respect the wishes of the group.

Looking for a good book? Family Business by Ernesto J. Pozza.

______________________________________

Andi Gray is president of Strategy Leaders Inc., www.StrategyLeaders.com, a business consulting firm that specializes in helping entrepreneurial firms grow. She can be reached by phone at 877-238-3535. Do you have a question for Andi?  Please send it to her, via e-mail at AskAndi@StrategyLeaders.com or by mail to Andi Gray, Strategy Leaders Inc., 5 Crossways, Chappaqua, NY 10514. Visit www.AskAndi.com for an entire library of Ask Andi articles.

pdf version

Share