A business owner recently told me, “I have one brother who is my best friend and one who I don’t talk with, all because of business and financial issues.” Tragic yes, but not uncommon. Having worked with business owners and their families for over 30 years, I have witnessed situation after situation in which the family business has resulted in family heartache. Fortunately, that does not have to be the end result; there are many examples of family businesses being run successfully by harmonious family members. Some landmines that you need to avoid that will enable success in business operations include:
False expectations regarding working in the business
As parents, we can be guilty of having good intentions but creating false expectations with our children. If your desire is to see your children succeed you in the business, it’s likely you have conveyed that message over many years. Since you were highly motivated and did what you had to do to succeed, you may assume your children will do the same, but often they don’t! Usually your children don’t do what they have to because you don’t hold them to the same standards you held yourself to; you allow them to bend the rules. Since they may be paid and promoted regardless of their productivity, a false expectation is created that they are succeeding and are entitled to be your successor one day.
Owning a business is tough. “Only the strong survive” appears to be more reality than a cliché. Therefore, unless your children have paid the price to be capable leaders, they are likely to be counted among the casualties once you are not there to prop them up.
False expectations regarding the rewards from the business
Business owners often utilize their businesses to pay for many family perks, such as cars, gas, group medical, payroll above-and-beyond services rendered, etc. Often, this will go on for years without significant problems until the day one of the owner’s children begins to work in the business and feels as though they are having to earn their benefits, while other family members continue to enjoy the perks without participating in the running of the business. And from the perspective of the inactive children, they are still entitled to these benefits as “Dad has always run the company as a ‘family business’.”
False expectations that everyone is to be treated equally
Most parents spend a great deal of energy trying to equalize gifts to their children, whether this involves holiday gifts, life experiences, or opportunities. In general, parents want their children to know they are loved equally and never want to come across as favoring one child over another. This problem of equalization reaches a crescendo when an owner has multiple children and wants to transfer the business to them. The fact is that there are only two ways to divide an estate equally among one’s children. The first is to have only one child! The other is to sell off all assets and divide the cash. However, this involves selling the business and real estate which is usually what an owner is trying to preserve. Without a good “equal” solution, we encourage owners to evaluate the practicality of trying to distribute their assets fairly versus equally.
For most business owners, the business represents a disproportionately large portion of their estate. Therefore, if only one child is committed to succeeding you—and you are committed to an equal estate distribution—it’s likely that you will need to commit that child to having to pay a significant amount to his/her siblings in order for the estate numbers to be equal. The questions then are, whether the business will be able to generate the profits needed to pay the siblings and is this fair to the child running the business?
As a parent, I fully understand how easy it is to get caught in the bind of creating false expectations. But continuing to plan your business and estate based on false expectations is a road to family and business disaster. Usually outside advisors are needed to help guide you and your family through this minefield as emotions can escalate quickly when assumptions that were planted years ago are challenged. As the owner quoted earlier said, “Dad did not like confrontation so he told everyone what we wanted to hear.” The result was family fireworks and broken relationships—definitely not what his father wanted.
If family harmony and business success are your objectives, it’s critical that you honestly evaluate where you and your family members stand in terms of employment, benefits and treatment expectations for family members. An outside advisor can help with this process by interviewing each family member so that a true picture is revealed. Once you know what expectations exist, you can develop a plan to correct false expectations. In addition to realigning expectations, make sure you are consistently sending the right messages to everyone regarding what they can expect for the future of the business. The choice is yours: “Let the kids work it out” and expect family fireworks or address the issues now and achieve your goals of family harmony and business succession.
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