Protecting a Legacy: The Challenges of Passing on the Family Business

Protecting a Legacy: The Challenges of Passing on the Family Business

When it comes to mixing family and business, there are two schools of thought.

Firstly, it’s a bad idea as it will affect your ability to make rational decisions and force you to not always put ‘what’s best for the business’ first.

Secondly, with it becoming increasingly difficult to find staff, employing family members is a great idea as they will be loyal and also personally invested in the success of the business.

Obviously, there are a range of variables that will affect your perspective on this (such as whether your family members have a strong work ethic) but family businesses, whether they’re corporate giants like News Corps’ Murdochs or your local grocery store, remain a reality for many and there are a number of important steps you can take to ensure your business runs smoothly now and in a future where you’re no longer the boss.

Talk it over

Non-family run business owners can be as ruthless (or kind and compassionate) as they please. Major business decisions needn’t be negotiated with staff (but can, and many would argue, should be) and these decisions are unlikely to become a topic of conversation at your next family gathering.

Family business owners, however, must recognise that their decisions have repercussions beyond the 9-5 daily grind. These decisions will follow you home and that’s why it’s vital that you have open and honest conversations with your family employees about their role within the business, their expectations, their core competencies and, especially, their remuneration and equity within the business.

As a general rule, we would advise that pay matches the role an employee is performing. If someone is working 10 hour days managing a complex logistics system, they deserve more than someone working seven hours a day at the checkout. When it come to equity, however, keeping this equal between all parties is often a safe approach to take.

Establish rules and structure

Where there are ambiguities, tension can arise. By establishing a hierarchy of business decision makers, clearly defining people’s roles and responsibilities and, rules around how issues and disputes are handled, much of this can be avoided.

Identifying and implementing best practices in these areas are something best done by the owner, given they will be the person with the most knowledge of the business, but your accountant is always a good person to speak to should you have any questions.

Encourage Financial Literacy

To make informed decisions, you need information. Better yet, you need objective information and your various financial statements are as close to ‘objective’ information as you’ll get.

Encouraging (or insisting) that your family employees familiarise themselves with the relevant financial materials will ensure that any disputes or decisions are made based on the best information.

Recognise the struggle

If you’re the business owner and you have family members working for you, there’s a chance that they won’t understand the struggle you’ve had to go through to get where you are. They tend to take things for granted, particularly if they’re younger and weren’t around from the early times of your business.

They only know that you have a successful company and have plenty of money and may be under the impression that success is a given. Make sure you remove any of their complacency as complacency is a first step to failure.

Form a handover plan

When the time comes to move on and hand over the reins of the business to your family employees, there is plenty to consider.

Who is best at what job? Who or which people will become the key decision makers? If there are life-changing circumstances for a person (injury, illness, for example) who takes on their role? Who has proven to be competent and who hasn’t?

As always, your accountant is always here to help should you have any questions.

If you want to learn more about how to handle a family business, please contact us below.

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