Over 90% of American businesses are still family owned.1 The mom-and-pop (and other relatives) operation is alive and well as we approach the twenty-first century. But these enterprises have special considerations that don't exist in other small businesses. As the novelist Tolstoy wrote: "All happy families resemble each other. Each unhappy family is unhappy in its own way."2 The question is, which kind are you? Whether you're just starting a new family partnership or you're a third-generation operation, here are some points to ponder:
1. SEPARATE OWNERSHIP FROM MANAGEMENT.3 Any business is most efficient when qualified people are employed. Hiring the wrong person is an expensive mistake.4 "But he's my nephew. I had to give him a job," you say. The trick is to find the RIGHT job that maximizes the person's abilities--and doesn't require him to perform duties he's not qualified for. Consider special classes or re-training to bring a family member up to her full potential. As a last resort, change their status to non-working partners.
2. RESOLVING FAMILY CONFLICTS. Most advisors recognize that family issues influence business decisions. But Genus Resources Inc., a Massachusetts consulting firm specializing in family business issues, says that family issues DRIVE business decisions.5
How many times have you heard someone say: it's nothing personal, it's just business. With family members as partners, it's ALWAYS personal. Whether you want to expand your enterprise onto the Internet, or fire that nephew you had to hire, all partners may not agree. Make a formal plan for resolving differences, and stick to it.6 Maybe it's a mandatory family meeting and a vote that you must abide by, or an agreement to follow outside advice (professional mediation, for example). Have a solution in place before problems happen.
3. PLANNING FOR THE FUTURE. Most small business owners spend their time on today's problems, with little thought for the future. But if a key family member dies or become disabled, what happens then? Many people assume their spouses or children could sell the operation. But to who? For how much? And do they really want to sell?
The strongest plan for a business' future is a buy-sell agreement. It gives your family a guaranteed buyer (your partners) for your business interest if you die or become incapacitated. It also sets the price--AND provides the funds for the sale. 7
Life insurance is a main element of the buy-sell agreement. You should also carry disability insurance, for the same purpose. A stroke, a serious accident, a long-term illness--these will create the same business problems as your death. But they aren't covered by life insurance. An agent with heavy experience in business succession planning is invaluable here. These insurance plans--and the underlying buy-sell agreements--should be reviewed and updated on a regular basis.
A family business can bring a special satisfaction that ordinary work will never know. It just takes a little special planning. For more information, check out the archives at the
