The SCORE 2016 Issue 2 | Page 35

Needless to say , these can be perplexing questions that many of you can appreciate firsthand , either because you have grappled with these gut-wrenching questions personally or worked your way through them in the recent past . The fact is , protecting your business and family relationships is not easy and requires a tremendous amount of work in advance to effectively function and ideally succeed in the future .
Having worked with several families over the past 20 years , here are some best practices that may assist you in increasing the odds your family business will continue and your family will still like each other at the end of the day .
1 . Select the most capable person to lead and operate the business regardless of family ties , age or gender .
Restrain from selecting a successor solely based upon being the oldest child or the oldest male in the family . If you are blessed to have a capable , mature , experienced and committed family member successor , consider yourself fortunate . If not , recruit or promote the talent necessary to preserve your “ golden goose ” so family members can continue to reap the benefits and rewards of family business ownership . If a non-family member is selected as the next leader , provide the proper incentives to retain their services for the timeframe desired .
2 . Compensate family members based upon the role they are fulfilling in the business .
Equal compensation for family members making an unequal contribution to the business is a breeding ground for resentment . Eventually , the resentment can wreak havoc on family relationships and business operations . Thus , recognize active family members through their respective pay plan . The distribution of business profits should follow stock ownership .
their business relationship . This process will help lead to the development of a shared vision that will drive business decisions in the future .
5 . Provide a forum such as an operating board of directors for siblings to mature and grow .
An operating board of directors can be a valuable forum for active and inactive family members to learn and grow in their understanding , as well as receive periodic updates from management regarding the performance of the business . This can also be a fertile test bed for partners to learn how to communicate and function together . These skills will become invaluable when the current leader is no longer available .
The fact is , family business is an oxymoron whereby family and business are in constant conflict with each other . Family typically represents “ unconditional love and acceptance ” and business represents “ conditional performance .” Successful family businesses remain constantly aware of these competing dynamics and strive to achieve a healthy balance utilizing the best practices described above . Like any worthwhile endeavor in life , family business succession requires hard work , sacrifice and commitment to succeed . Are you up for the challenge ? S
DAVID CIAMBELLA , CFP ® is a partner of The Rawls Group , which has assisted business owners with their succession planning since 1973 . Well-respected in his field , David is a highly requested speaker and has published numerous articles on this subject . For more information , email djciambella @ rawlsgroup . com or visit www . rawlsgroup . com .
3 . Develop ironclad shareholder agreements or operating agreements that siblings will be bound by once operating company stock is inherited .
Developing a shareholder agreement that addresses multiple contingencies such as death , disability , divorce , bankruptcy , etc . minimizes the probability of negotiations among family members and also ensures the business will remain in the family . The agreement would include , among other things , provisions to break a deadlock on strategic items of importance . This is an important consideration especially in 50 / 50 sibling partnerships or in situations where there is an even number of family member shareholders . An example may include utilizing a CPA , attorney or a committee of three to serve as a tiebreaker in the event partners are in a stalemate on a strategic issue . Seeking advice from legal counsel is imperative as you develop shareholder and operating agreements .
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4 . Align expectations and create operating covenants .
Siblings often have varying definitions of success , family circumstances , financial goals , hobbies , levels of motivation , etc . In light of the differences noted above and many others not mentioned , it is critical family members develop reasonable expectations of each other that will serve as the foundation of
THESCORE | 2016 Issue 2