The Family Business: Making Sure Both Stay Intact
It's a tough balance to strike, but the benefits are many for those with the drive and patience to make it work.
Last summer, first cousins Thomas F. Nee Jr., and Michael LaBrie took their families on vacation together, hardly an unusual move for close relatives who also happen to be close friends. What is unusual is that Nee and LaBrie are business partners who still seek out each other's company outside the office, even after 18 years working alongside each other at their financial planning firm.
Mixing business with pleasure is one thing, but mixing business with family yields an altogether different, and often volatile, dynamic. While many family businesses collapse under the weight of high expectations, heavy politics and plenty of personal and professional baggage, Nee and LaBrie's firm, Compass Point Retirement Planning in Wakefield, Mass., has prospered due in large part to the extra steps they have taken--from talking through major issues before launching the business to implementing a succession plan--to protect their business and their personal relationship.
"We had a business in the family before us where the two brothers who owned it ended up dividing and not speaking to each other for a long time," says Nee. "We've always been pretty close, and we didn't want that to happen to us. So far, so good."
Compass Point has thrived against the odds. Just one in three family businesses survives long enough to pass to a second generation, while just 15 percent make it to a third, according to Ted Kurlowicz, who oversees a program at the American College through which professional advisors can earn certification as a family business specialist.
On top of the operational and strategic challenges the typical business faces, running a family business presents a unique set of obstacles that can derail a venture and splinter cherished relationships:
- Disagreements among family can spill from the professional to the personal and vice versa. That problem can be particularly acute with spouses who are in business together, says Beth Wood, assistant vice president of business market development at MassMutual and a former family business owner herself. What's more, notes Ira Bryck, director of the Family Business Center at the University of Massachusetts-Amherst, "a hostile family workplace is even more brutal [than a hostile nonfamily workplace] because people know exactly where your buttons are."
- Business-related disputes can linger. "They can destroy the family for a while," observes Kurlowicz.
- Family business often blurs work-life boundaries. In a survey of more than 500 family business owners commissioned by MassMutual, 56 percent indicated they are constantly trying to improve their work-life balance.
- Financial risk is magnified in a family business setting, says Wood.
- Owning a family business tends to create more stress (44 percent said so in the MassMutual survey).
- Participants in a family business tend to take less time off than they did previously, according to Wood.
Evidently, however, many entrepreneurial families are willing to try overcoming the odds, because the rewards can make it all worthwhile. Indeed, according to the MassMutual survey, findings from which are included in its recent "FamilyPreneurship" study, respondents said the advantages of being in business with family clearly outweigh the disadvantages. Those benefits include:
- Being your own boss and the schedule flexibility that comes with it.
- Creating long-term job security for you and other family members who are part of the business.
- Generating family wealth.
- Working with people you know intimately and learning more about them via professional interaction.
- The opportunity to run sizable portions of a business and escape the corporate ladder.
- The chance to diversify your business skill set.
Making It Work
Realizing those benefits hinges largely on the family business actually thriving. What, then, can family members do to give their business venture the best chance of beating the odds and being successful?
Start with a solid relational foundation. "You have to have a healthy relationship [with the family business partners] to start with," says Kurlowicz.
Answer the big questions upfront. "You basically have to figure out how to run your business like a business and your family like a family," explains Bryck. How will family business partners evaluate one another's work? How will family members be compensated? How will the family deal with wealth created by the business? What's the policy for family members joining the business? Compile all those policies in a formal document to be periodically revisited and updated if necessary.
Define a clear, efficient decision-making process. Family businesses are often plagued by problems reaching agreement, setting goals and compromising, according to the MassMutual study. Kurlowicz recommends establishing some kind of family governance structure--"an avenue for people to work things out and air their concerns."
Nail down roles and responsibilities. Who reports to whom? Who gets which duties and responsibilities? Put all that in writing before launch, says Wood, "so that disagreements don't fester."
Communicate well, both as business partners and family members. Nee says the ability to keep an open mind and to listen to and speak frankly with one another have served his firm well. Good communication is also vital with employees. "The best defense is a good offense," says Jeff Glaze, who runs Decorated Products, a family-owned manufacturing business in Westfield, Mass. "If you're bringing a new family member into the business, address that upfront with employees."
Find ways to mesh complementary skills. "I don't like to write and Mike does, so he does most of our proposals," says Nee of his cousin and business partner.
Create time for fun outside work. It's one of the keys to maintaining a healthy work-life balance, the MassMutual study concludes.
Don't hire family members just because they're family. That can weigh a business down, according to Bryck.
Don't pressure family members to join the business. "You don't want it to feel like an obligation or an albatross," says Glaze.
Have a healthy sense of trust and respect for other family members in the venture. The MassMutual study says trust among partners is a huge factor in the success of a family business. Avoid keeping score when it comes to who's putting in more hours, etc., says Nee. "You need to recognize that what's good for your partner is good for you and trust that the person isn't going to screw you."
Formalize a succession plan to address the what-ifs. It's a good idea to work with an advisor to put in place a formal exit strategy and buy-sell agreement among business partners, says Wood. "You have to think about what your end game is: Will you ultimately sell the business or pass it on to other family members? If one partner dies, do you want that partner's spouse to be your new partner? You need to have all this down in writing upfront--a long-term plan for succession or exit." It's also important to be clear that leaving the family business won't result in being "excommunicated from the family," Bryck adds.
Make estate planning a priority. If the plan is to pass the business on to heirs, develop a plan for making the transfer tax-efficiently. "Don't lose it all to Uncle Sam," says Wood.
Bring in an advisor to help resolve issues you can't. Family business organizations such as that at UMass-Amherst can be valuable resources, says Glaze. "It gives you another point of view."
David Port is a freelancer based in Denver who writes on small business, and financial and energy issues.