Working with your family is not normal - until it is. In family businesses, working with your relatives is just what you do each day.
Whether you’re just thinking about starting a mom-and-pop shop or trying to maintain the success of a million-dollar business that’s been passed down for several generations, we’ve got you covered. Grant Nickerson, one of our commercial banking experts, has four best practices for growing a thriving family business:
Key 1: Communication is Necessary
Every family has disagreements, and you may not all agree on every business decision, either. Clear, open and direct communication is necessary. Spell everything out, including roles and responsibilities, to ensure that everyone is on the same page and avoid misunderstandings or uncomfortable situations.
Keep an open line of communication with your loyal employees who are not related to you, but may feel like they are part of the family. Setting clear expectations early and often is helpful to avoid tricky situations where employees may experience outsider feelings if they believe family members get special treatment like promotions or generous raises.
If you’re concerned that sibling rivalries will spill into business decisions, turn to an impartial third party, either an external consultant or an unrelated employee. They can help take the emotion out of the situation and make an unbiased decision to guarantee you’re setting the business up for success.
Key 2: It Doesn’t Have to Be All In the Family
Speaking of outside help, just because you own a family business doesn’t mean you only have to work with your relatives. Hiring outside experts in different areas can help your business continue to grow and thrive.
CASE IN POINT
We work with many family businesses that have high ranking employees outside the family who bring necessary industry experience and knowledge to the table. Members of the family also bring their areas of expertise to create a cohesive, better-rounded company.
Key 3: Prepare for Transitioning the Business
Passing the torch in a family business can be a bittersweet milestone. Before that time comes, develop a solid plan and clearly communicate with stakeholders.
Having honest conversations with the next generation regarding their interest in maintaining the business is critical. You may find that your son-in-law has a stronger interest in the family restaurant than your own children do. Consider who is qualified, interested and intimately involved.
You may also find that no relatives are interested in taking over the business, which requires strategic planning of what’s next - either selling your business or finding a trusted employee to take it over.
Regardless of the situation, planning ahead can ensure that everyone is treated equitably and help you mitigate family drama before it happens. Consult your team of business advisors - your lawyer, banker and tax professional - to set up a transition plan. These advisors will help you minimize any risks and tax liabilities in the transition process. It can take some time to fully transition your business correctly, so think ahead and don’t leave it to the last minute.
Key 4: Strategically Plan for Every Scenario to Protect Your Assets
Do you have a succession plan? If not, might want to seriously consider creating one. If you do have one, it might be time to review whether it has contingencies for many different scenarios.
Especially with family businesses, it’s important to consider the many possibilities where a succession plan is necessary. This keeps your company in the hands of the right person and ensures its success. Even if you just took over, it’s important to protect your business with a succession plan.
You should also consider protecting your assets in the event that a relative who has a stake in the business goes through a divorce or there’s an untimely death. It may seem straight out of a reality TV show, but it’s best not to leave anything up to chance. Consult your legal team regarding what avenue to take, whether it’s a trust, a prenuptial agreement, a buy-sell agreement, or other legal protection to ensure the continuity of your business.
With solutions tailored to your unique business needs and experience working with many family businesses in Massachusetts and Rhode Island, our commercial bankers are well versed in what it takes to help your business meet its financial goals.
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