If you own or operate a family business, you understand the importance of having a strong leadership team in place. After all, making the right strategic decisions and running things smoothly on a day-to-day basis are essential for maintaining profitability and increasing the family’s financial resources.
In an ideal world, your siblings, children, or grandchildren would all have great business acumen and be able to step in and keep the company rolling along for many years to come. But in reality, your family members will have different skillsets, interests and personalities. As a result, some will be ready, willing, and able to succeed you in leading or being involved in the family business, whilst others will lack the skills or the desire to do so.
In my many years of experience as an outside professional advisor, I have seen many wealthy families wrestle with the issue of whether to put the business or the family first. Like many issues in life, there is no right or wrong answers because each family’s situation is unique.
Perhaps the business is the sole driver of family wealth, and its continued success is vital to the financial well-being of everyone. Or it might be less important than a substantial investment portfolio managed by a family office. With some families, there might be numerous children and spouses all clamouring for a management role in the company, whilst in another, the family might have just one child learning the business in preparation and hope for an eventual management role.
These are some of the issues that need to be considered when making your estate plans, as well as your business succession strategy. It is an important topic to discuss in family meetings to ensure you gather everyone’s input and share their thoughts on what comes first.
A family constitution
A good starting point is to draft a family constitution that includes a value statement regarding the continuity of the business and the integrity of the family. Then, you can send it around to your family members and assess their reactions. Once you receive feedback, this will drive the direction of the family and revisions can be made to the document where appropriate. It may take a few iterations to get to the right answer for any given family.
If you are a business first family, then we would recommend that you find a way to reward family members who are active in the business and generating wealth for the other family members. For instance, you could specify which area of the company they work for, create achievable goals and give bonuses related to those goals. Non-participating family members would only benefit from the family Trust and the appreciation of the family business.
On the other hand, if you discover that you are family first, you may decide that each member will receive an equal share of annual profits and/or proportional ownership of the business. For some families, fairness, equality, and cohesiveness are the top priority. To them, each child should be loved and cherished for themselves, regardless of business acumen or skills.
It’s possible that in the process of these family conversations, you uncover conflict between these two values that may be hard to reconcile or resolve. In those situations, more drastic action may be considered, such as selling the business. Before making such a decision, you could talk with an outside professional to see if the issues can be resolved equitably. Hopefully, you can find a solution that meets the needs of both your family and your business.