20 Associated Builders and Contractors, Inc. EQUAL FAMILY BUSINESS OWNERSHIP member to take on the position and ownership—the good and the bad? The owner will also have to consider how this family member taking a position or being promoted, becoming an owner, will affect other family members both involved and not. How will it affect the owner’s relationship with this family member or the relationship of this family member with other siblings, aunts, uncles, and cousins? Smart owners will establish criteria for bringing family members into the business. Setting the ground rules for expectations and measurables. This is very valuable for situations where there are multiple owners, whether related or not. (Remember, there are other ways to provide (or make “equal”) for the owner’s children that are not involved in the business and will not be receiving interest in the business.) Clearly identifying the key position within the business, having clear job descriptions and establishing a method for tracking value-added and accountability, are highly recommended. Establishing clear rules and guidelines for accountability and reporting methods are equally important. This can be done by creating an organizational chart. Having this framework provides a governing hierarchy where all parties are clear on what they are responsible for as well as what others are responsible for. For example, you have two children and want to each give them an equal percentage of the business because this business has been your livelihood and you want both children to have the same opportunity for wealth. This scenario presents multiple problems among and beyond the many considerations we addressed above. It is common for owner(s) to want to pass on and provide wealth to the next generation. It is essential to the well-being of the business and the family for the owners considering passing this wealth by transferring equal percentages (or interest) to their children to stop avoiding these conversations. If one of the desired goals for the owner is to pass on wealth by giving equal percentage (or interest) through interest in the business, they should ask themselves the hard questions: Why do you feel each child should have equal amounts? Is this because you as the owner, and parents, have made a living off the business? Is it because each child is bringing equal value to the business? Is each child spending equal time on the business? Is the value each child is bringing different? Do the positions that each child will hold lead itself to equal responsibility? What about equal stress? Does each child have a similar understanding of the business, its needs, its product/services, its future goals? Does each child have a passion for the business? Will each child be able to meet the position’s job qualifications, duties and expectations as defined? If this child was not related to you, would they be a top candidate for the job? Would you pay them the same salary? If they are working for the business currently, are they meeting your expectations? Selecting the most qualified candidate to meet the goals of the business for its continued growth and success should be the owner’s primary goal. This should remain true even when the candidates are family members. It is paramount that owners consider the impact on the key employees when deciding which family members will be brought into the business and who will help run the business. Key employees drive your business forward. These key employees are accustomed to working with the existing owner(s) and respect their way of running the family business. Human nature, in general, fears change. The key employees may have concerns about their future security based on the decision you make. This concern is typically addressed if the framework discussed above is followed but we also recommend business owners create a training or mentoring program for family members. We suggest that this training/mentoring come from the key employees. This allows the key employees an opportunity to learn the skills and personality of the new family member. Another common solution is to create an advisory committee consisting of the key employees and get them involved in some of the exit planning and mentoring discussions. Most family businesses do not survive past the second generation. Why is that? Probably because the owner did not address the questions posed above and the most important element of future success—leadership. The success of your business is in large part connected to your employees. Having a plan for this transition and allowing the employees to have knowledge about that plan prevents this fear and insecurity in the future. The more comfortable they are with the next generation and with what the stages of the plan are, the more confident they are It is important to consider the effects these decisions will have on the business, your employees and other family members whether involved or not. It’s time to have the conversations and be realistic. Stop avoiding them. Take control of your future and start planning for yourself, the future of your family, and the business.
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