Formulating Family Business Strategies

A college friend used to say, “what’s good for General Motors is good for America.” Of course, this was back in the late 1980s, and way before the bailout.

Anyway, his statement was more than a little self-serving, since at the time he was working in engineering at one of GM’s electrical divisions. And as it turns out, he may also have been completely wrong. It’s probably more accurate to say, “what’s good for family businesses is good for America.”

Here’s why. According to the Columbus, Ohio based Conway Center for Family Business, family owned businesses make up a critical component of the U.S. economy.

Family businesses:

  • Generate about 50 percent of the nation’s gross domestic product
  •  Employ 60% of U.S. workers, and
  •  Are responsible for nearly 80% of all new job creation

So if you’re part of a family business, and it’s very likely if you’ve read this far, thanks!

Family Business Challenges

But family businesses have their own sets of challenges and issues, ones that can make growth and success for the company tougher than it has to be. Many of these business challenges result from the delicate balance that must be reached between what’s good for the company, what’s good for the family, and what’s good for various individuals in the company and family.

A thorough overview of a complete family business strategy would take more space than what’s available here, but there are a few matters that should be part of any serious discussions with the family business legal team, and estate and transition planners.

Who Owns the Company?

Or maybe, who can own the company? This is trickier than it sounds.

Can shares of ownership be sold to employees who are not family members? Who is eligible to inherit shares when family members die? When shares are inherited, to whom may they be sold? What about non-blood relatives (in-laws)? How are their opportunities different from those of family members?

These are delicate questions from both a legal and emotional perspective. No two situations are alike, but there probably numerous precedents similar to the circumstances faced by your company and family that can provide a framework from which to draw some reasonable guidelines. Your attorney should be able to make a referral to someone with experience in this area.

Transitioning from Parent to Mentor

For the good of your company, your children, and your sanity, it’s important that you remember that your family business is still a business.

That’s easier said than done. When it comes to 9 to 5, your role becomes that of mentor, not dad or mom.

We all want good things for our children, and that can often mean being a meaningful contributor to the company you run and own, but don’t let your emotions interfere with your judgment in terms of what they’re capable of and what they’re not. A trusted third party, perhaps an accountant, consultant, independent rep, or other person with extensive knowledge of your company and its personnel, can give you an unbiased assessment of your child’s strengths and weaknesses.

Tip: If your company’s structure allows, consider rotating children in the business through positions that allow them to work in various functions (sales, finance, production, etc.). This will serve the company well in the long-run, too. Positions off-site, where they can work away from your direct supervision, are even better.

Who Will Take Over?

This is the stuff that soap operas, uh, excuse us…daytime dramas, thrive on. But transitioning to the next generation of family business leadership need not be as dramatic as is conventionally shown on TV.

Actually, it’s usually not that there are too many offspring clamoring for a chance to steer the ship, it’s that there are often too few. Well, at least when it comes to them being qualified, motivated and well-trained.

Sometimes one or more sons, daughters, nephews or nieces have no interest in assuming the crown. They may lack the passion for the particular industry you’re in, have different interests altogether, or just may not want to work that hard – none of which is a sin. If this is the case, you have the choice between grooming the remaining interested family member(s) to assume the role, or starting a search for an outsider you can eventually prepare. But give yourself plenty of time. Five years before your planned retirement wouldn’t be too much.

But what if you have several children clawing at each other to take the helm when you’re through?

It’s unavoidable that a certain amount of favoritism rears its head in family business matters. But if you’re in a situation where birth order, gender, or last name becomes more important than experience, qualifications, and demonstrated ability, you have a problem on your hands.

This can be short-circuited by establishing clearly-defined rules for promotion and advancement. Perhaps everyone starts at the bottom?

You can also take your emotions out of the succession matter by appointing an independent advisory board and charge them with the long-term task of naming your successor from the family members wanting the job.

Additional Resources

There’s no question that family business matters are complex. For additional help with your business strategies, contact one of the organizations listed here.

The Family Business Institute: Provides research, tools and general information for owners of family and closely-held companies.

The Network of Family Businesses: Holds seminars, webinars, workshops, and other events of interest to owners and employees of family owned businesses.

FamBiz.com:An extensive website featuring articles and documents in at least 25 categories (succession planning, compensation policy, etc.) of interest to family businesses.

Image: Jackson 5 performing in 1971. No copyright information. Public domain.

MP Star Financial can help you get a better handle on your company’s cash flow management. Call for more information. (800) 833-3765, extension 150.

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