As the owner of a privately owned family business, whether it is small or global, you have two responsibilities — protect the family and protect the business. Emotions often run high when opinions differ or rivalries heat up. How do you address the feuding and plan for a future where everyone knows what they can expect? It's important to establish a clear communications strategy and a family ownership structure.
Planning for the Future of Family Owned Businesses
One of the first steps in planning for the future is identifying which children and family members are interested in being involved in the business, and bringing them into the fold. Children can work during high school and college summers and then you can begin grooming them to take over the business. Give them the tools they need to visualize and plan their careers within the business.
It's also important to identify which children and family members do not want to be involved and get their acknowledgment, in writing if possible. This goes a long way to preventing quarrels that threaten to dissolve the business in the future upon a major change, such as the death of the owner. For example, if all children, whether they are involved in the business or not, become equal owners of the business, how does that affect the child that has been involved in managing or operating the business and identified as your successor?
Setting up a Family Council
Everyone in the family needs to know what's going on if you want to minimize long-term feuds. It's important to periodically communicate what’s happening within the business that affects the family's finances today and in the future. Establish a family council — which is different than an advisory council — to establish transparency. The family can meet once or twice per year to discuss what is going on with the business in general and the direction it is going (not the day-to-day operations).
The purpose of the family council is to bring everyone to the table — those with a role in the business, and those with no role in the business, to share points of view. The family council can be set up in many ways. For example, some family members may have voting rights, while others do not. With a council, everyone in the family is kept apprised of what's happening and can provide feedback or insight. But the key consideration with a family council is through regular communications and feedback, which helps you gauge the emotions that will inevitably bubble up. This will allow you the opportunity to take steps necessary to make sure they stay level. In other words, you must deal with the emotions before the emotions become an issue.
Creating a Succession Plan
While the succession plan is not a legal document, it details what is going to happen down the road upon the owner's death, retirement, or transfer of the business to the next generation. The plan details who will own the business and who will manage it. There are many ways to structure the plan — some children can be silent partners, have equal ownership, or have a larger share of ownership along with their management roles. A documented succession plan puts all the family in the know. It’s helpful to get family members to sign off on the plan to clarify that they accept their roles, or lack of them, in the business.
Protecting the Business
As the owner, you want to see the business continue. A family business can dissolve quickly if one family member forces another that may inherit the business, to sell it in order to get their equal share of the total estate's money. Once you have established which family members are involved in the business, the next step is to "equalize" the estate and make sure that those not involved in the business have an equivalent share of your estate. Proper estate planning helps to ensure that you have prepared for both of your responsibilities — protecting the family and protecting the business.
Considering a Third-Party Professional
In setting up a family council and a succession plan, it is helpful to have an independent third-party like a Financial Professional to provide objective insight into matters related to the business that may create high emotions for some family members. They may explain business decisions from a logical perspective to the family council, and may also provide guidance in developing the succession plan. Third-party Financial Professionals may also assist with products and services to protect both the business and your family such as insurance, retirement planning, and key employee retention strategies.