Owning a business is not easy, especially if it’s a family business. When I think of a family business, the expectations for a relative are different from those of an employee. Dealing with relatives in business can be tough, as delicate work issues can easily cross over to family matters. In my experience, clients tend to “brush issues under the rug,” rather than confront a family member with a critical business issue, thereby shortchanging the business.
Family businesses and entrepreneurship play a significant role in our American culture. One of the most important things parents can teach their children is a sense of values, which can come from working together and establishing a shared sense of goals, a strong work ethic, and so much more. I know this from personal experience, both as a banker dealing with clients and their family business, and as a recipient of a family business.
Statistics show that 95% of business owners do not have a succession plan. That means only 5% of those of you reading this article have a documented succession plan for your business. This was the case in the transportation business I inherited from my father. This is when I personally developed a passion for educating my clients and loved ones, so they would not have to go through what I went through. Visiting vendors and employees while growing up was just not enough to prepare me for what was to come.
To alleviate missteps when transferring a family business from one generation to the next, a succession plan needs to be created and executed.
Here are three steps family business owners use to effectively run their business:
1. Create a board of advisors. This consists of non-family members such as your lawyer, accountant, banker and any business owner whom you may know and respect. Meet at least annually to review how the business is being run and discuss family roles as part of the succession plan. This is an effective way to get invaluable outside advice on critical decisions. This will also provide outside expertise in areas that may prove beneficial to the growth of the company.
2. Identify roles and responsibilities. Every employee should know what is expected of them. Don’t assume roles and responsibilities will take care of themselves. Make them clear and defined so there is an expectation of who is in charge of what. Once roles are declared, make them official and create a description of each role to share with all of those involved and create a sense of accountability. This is a good document to review with board members to make sure everyone is pulling their weight for best business practices.
3. Legally document the succession plan. If the business or family experiences a loss, nothing is more important than a documented succession plan to honor the founder’s wishes. It is good practice to consult with a succession planning specialist for your business. Have these conversations early in the business, this will allow you to investigate all options, including selling the business, liquidating, passing on to the next generation, etc. A formal succession plan should be reviewed a minimum of annually, as circumstances change, and possible heirs change their mind from time to time.
A family business can not only be a source of great satisfaction, it can also help teach financial literacy, the value of a dollar, how to work together and reminds us to think about something greater than ourselves. Now those are values any family can get behind!
Dr. Betty Uribe is Executive Vice President of California Bank & Trust. For more information, contact Dr. Uribe via firstname.lastname@example.org.
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