Don't Let Family Drama Derail Your Business 5 must-dos for minimizing conflict in a family-run business
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Curtis Krietzberg started out as a corporate guy, but family business was in his blood.
He spent many years watching his father and uncle manage restaurants together, so when Krietzberg was ready to leave the corporate world, turning to family made sense.
"Reflecting on my dad's business relationship with his brother, I decided that if I was going to go into business with anyone, it should be my brother," Krietzberg says. "I knew he would always have my back."
That was nearly five years ago. Now Krietzberg and his brother, David, manage Krietzberg Financial Group, a financial planning firm in Edison, N.J.
The Krietzberg brothers are the exception. More often than not, family business is fraught with complications non-family-run businesses don't have, as family relationships can strain working relationships. But with proper planning--lots of it--your family-owned business can avoid the pitfalls.
Here are five must-dos for minimizing conflict in family-owned businesses.
- Create a hierarchy
It's crucial for any business to have an unambiguous chain of command and clear job descriptions, but this is especially true for family-owned businesses. The business dynamic is often different from the family dynamic.
"It is critical for all parties, family and nonfamily, to know that Dad may be in charge of the family, but the sister is in charge of sales at the office," says David Levi, a lead managing director and head of the tax department in the Minneapolis offices of CBIZ MHM, a professional services company.
If those relationships aren't well-defined or based on skill, squabbles among family members can create confusion.
If nonfamily employees don't know who they answer to within the family, it can be difficult for them to navigate their own careers, and they may tiptoe around business decisions that may upset a member of the family.
Clients are impacted, too, as they may not be sure who to approach if they have a problem.
The Krietzberg brothers have clear roles at their company, but they have always known that disagreements might arise anyway. They have a business coach available to step in if they need someone to help resolve conflicts.
Another option is to let the customer have a say about disagreements.
"The ultimate boss is the customer," says David G. Strege, a certified financial planner with Syverson Strege & Co. in West Des Moines, Iowa. "When in doubt about some issue of what or how to deliver something to a customer, ask a core group of them for feedback."
Strege says client advisory boards--in person or via e-mail surveys--can help keep the business focused on what the customer wants. Also consider the use of social media sites for instant feedback from your target audience.
A lack of communication, or miscommunication, can cause frustration and resentment. You can't simply pass important company news to your family partners at a weekend barbeque or chat about client issues at grandma's birthday party.
Schedule regular meetings to ensure central players in the business are properly informed and have an opportunity to voice concerns and offer suggestions.
"When scheduling any meeting, the key is to determine the purpose and what you hope to accomplish," says Strege. "Send out these items ahead of time in an agenda format."
Before holding the meetings, set a consistent policy--the rules of engagement--about who can, or has a responsibility to, contribute at these gatherings. Also create a reporting system so family investors are properly informed about decisions.
"If I am a 10 percent owner of a family business but I don't work there, I still have a vested interest in what is going on, and there should be a constructive mechanism for me to get certain information," says Levi.
- Set compensation rules
A startup may not provide enough cash flow to compensate family employees, but if the business lasts, you must have a predetermined compensation plan.
Strege recommends using a compensation consultant to help determine salary amounts. The consultant will research industry data to find appropriate salary ranges for each job description. Next, you can develop a variable compensation or bonus plan based on the measurable items of what each position is expected to accomplish.
After you have a starting point based on the value of the employee to the business, remember that some seemingly unfair family relationships may now come into play.
"If an employee is receiving more because of family issues, that needs to be identified and addressed," Levi says. "It still may not change, but there should be acknowledgement that there may be a differential."
- Establish a welcome plan
Create a plan to address how family members who may want to enter the business will be treated. Some family businesses will not permit a family member to enter the business until they have gotten some related experience in a nonfamily business, which helps build credibility for that incoming family member, Levi says.
Once the new family member is on board, conflict between the older and younger generations is common.
"This can be the powder keg issue," says Levi. "Neither party is necessarily right or wrong, but often senior members think that younger members are trying too many things too quickly."
He suggests that a board of directors or advisors that includes nonfamily members with experience and the respect of both generations (such as accountants, bankers or lawyers) can be a valuable bridge in these situations.
- Have a succession plan
You may plan to stay with your business until the day you die, and maybe you will. You need a succession plan to make sure your business will survive after you're gone--something too many businesses fail to do.
In fact, only 30 percent of family-owned businesses make it to the second generation, according to the 2007 "American Family Business Survey.
"Not planning for it, or just hoping that junior or the granddaughter is going to be the future of the business can be fatal," says Levi.
Levi says even nonfamily businesses aren't always successful with the first choice of a new leader, and they have to turn to Plan B. Make sure your family has a Plan B, too.
One quarter of family-owned businesses don't even have a Plan A, the survey found, with senior members having no estate planning other than a will. And with more than 40 percent of owners planning to retire in the next 10 years, nearly a third haven't yet picked a successor, according to the survey.
Hire an estate planning attorney with legacy planning and family business experience to help your family create a succession plan and get your documents in order.
The Krietzberg brothers did just that.
"David is 10 years older than I am, and he may be ready to retire before me," says Curtis Krietzberg. "In that case, we have preliminarily discussed what each of us wants to see happen."
They have a written succession plan with life insurance policies to provide for their families and compensation as it relates to their stakes in the business, and they also have policies with each other as beneficiary.