If you have a family-owned business, there’s a lot that makes you unique – from your personal family dynamics to how your business ownership and management work. What many family-owned businesses might not realize is that these unique and overlapping “complexities” can contribute to success if they are balanced and stable — like the legs on a three-legged stool.
The stool’s first leg is family. It represents the love and dynamics characterizing every family. This leg typically consists of caring, mutually supportive relationships that help each member thrive from birth to death. But if the family leg is weakened by tensions or disputes, it could cause rifts within the business that affect the bottom line.
TIP: It is easy for families running a business to become focused on profits, expansion, new products, old products etc. The challenge comes in realizing that nurturing the family itself, outside of work, is just as important. Taking care of family is taking care of business. One way to keep that focus is to have and follow a simple family mission statement that captures the spirit of togetherness, such as, “No empty chairs at the dinner table.”
The stool’s second leg is ownership. Typically, family members own the business, though it’s possible not all owners are directly involved in the business. The ownership leg represents control. Ideally, owners exercise wise and prudent control of the equity invested in the business. It is characterized by the golden rule: He who has the gold makes the rules.
TIP: When some family member owners are involved in the business and others are not, conflicts arise. Establishing a board of directors, comprising experts and trusted individuals from outside the family circle, can help owners and management move past conflicts and stay on track. The board’s main purpose is to advise and help manage the owners’ expectations and distribution of responsibilities.
The stool’s third leg and final leg is business management. This leg’s strength depends on the competence of family members who are involved in the daily business management. Their role is to ensure the family business can effectively compete in the marketplace. They must work with the ownership leg, which holds high expectations of the competence and performance of family and nonfamily members in the business. For family members, the competence expectation is very high.
TIP: Establish clear employment policies for family members working in the family business to maintain the expectation that they must be competent in their role and that their position is not guaranteed simply because of heritage. That could include laying out a path for professional growth and development based on skills, training, education and performance.
Most family businesses have strengths and weakness in each of these three areas of complexity. It all comes down to balance and stability, like the legs on a three-legged stool, so that each leg does its share to keep the family business strong.
Ultimately, the family business does best when family members take care of one another, aren’t afraid to seek outside advice and set clear policies for family members who are and are not involved in the business.
Chris Wilcox is the taxation and transition partner and co-founder of JW Advisors, a Las Vegas-based consulting firm specializing in business financial consulting, litigation support and forensic accounting, assurance and tax services. Reach him at 702-304-0405.