Preventing Feuds in the Family Business

Succession Planning

Once you have a handle on how best to approach the family issues, the next level is to develop a succession plan that is not only a good plan from a business standpoint, but also has a good chance of being acceptable to family members who play a key role in the business.

Meeting both goals (having a good plan that's also acceptable to key family members) may at first appear contradictory or even a waste of time. After all, you might say "If it's a good business deal for Dad and Mom, then of course it's good for the family and everyone will want to do it."

All I can say is, "Lotsa luck." Family businesses (even the best ones) are never run strictly on a "dollars and sense" basis.

Just as every business has its own corporate culture that it lives by (regardless of what its slick brochure or Web site may indicate), every family business has a complex set of dos and don'ts that have evolved over the years that must be reckoned with in establishing a "saleable" succession plan.

For instance, here's a somewhat extreme but instructive example of how an otherwise good succession plan would be DOA if presented to your dad:

Let's say that four other family members also work in the business. As can be the case in many family businesses, two of the four are doing an OK job but make salaries and have perks that are more than they're worth to the business. The other two have been the problem children of the family who wouldn't otherwise be employable outside of the family business.

A good succession plan would recognize that in order for the business to be able to pay your dad for his fair share of the business and to continue to survive and prosper, at least two things would need to be done: First, the two problem children would have to be removed from the company over time. Second, the salaries and perks of the other two family members would have to be brought back to reality.

While that succession plan may get you an A in an MBA class, in real life, your father is not going to appreciate it.

Your dad consciously or unconsciously made the decision a long time ago to take care of those four family members by allowing them to work in and be handsomely paid by the family business, regardless of their fair market value. Your dad may not see your succession plan as a good idea. Rather, he may see it as both an accusation of having wasted company funds all those years and as a serious challenge to his self-defined role as protector of otherwise economically vulnerable family members.

To have a "saleable" succession plan in this case, you may have to factor in the cost of continuing the employment of the other four family members, while privately showing your dad how this extra cost will impact the amount that your dad can receive for his fair share of the business. The key to selling this type of succession plan may be to let your dad decide whether or not he wants to take less money for his fair share of the business in order to continue to support the other family members after he's gone.

In any event, keep in mind that a good or even great succession plan that violates the unwritten rules of the family business is unlikely to be accepted by the family and can even be counterproductive to any future discussions about that dreaded R word.

Chris Kelleher is an award-winning small-business advisor and attorney. He's also a sought-after speaker and the founder and resident legal guru of The Law Firm For Businesses, a boutique law firm that helps business owners creatively solve their business and legal problems.

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