During the development and compilation of this report, each of the experts interviewed was asked to provide us with 3 questions that their clients should ask when determining whether or not they should move forward with the solutions presented by the experts. Following are the questions the experts say need to be asked by the client and answered by the experts for each of the case studies presented in the September 2015 issue of Farm Equipment.
Questions & Answers by Lance Woodburry, Ag Progress, Garden City, Kan.
1. What is most important to your family — keeping assets together, creating flexibility for family members or generating cash for shareholders? What do you believe are the elements of a “successful family business?”
We often encourage family business members to identify their “guiding principles” — the key elements of their philosophy and business strategy that create the culture of the organization. A few to consider are below, and I've offered an alternative perspective for each one to help push your thinking.
Those working in the business should own it, or assets should be owned by heirs regardless of their involvement.
Any family member can come back, or you must pursue an education, work somewhere else and have a skill set that fits a need before returning.
Wealth should "skip" a generation, or parents (not grandparents) should determine what their offspring inherit.
Retirement means that you will not be involved in business decisions, or, because you are family, your input will always be welcomed.
The goal is to think about what principles have guided your family business, and the principles you want to guide the future. Those principles might revolve around expectations about how you participate in the management of the business, how you are compensated, how you treat employees, how you communicate as a family, your goals for keeping assets intact or your strategy for managing taxes. In the case study, those principles make a big difference in how the family's governance system is established and utilized. In short: What do you believe about your family and business, and why?
2. Do your family members have the trust and respect of one another to handle a long-term business relationship?
One of the real “disintegrators” of family businesses is an eroding of trust between family members. This erosion often starts by one family member assuming that another family member will support or approve of a way a situation is handled or decision is made, and that specific, clear and timely communication about the situation or decision is not needed. When things don't go according to plan, and the action by one was based on assumptions (rather than clear communication), people start to wonder if they can trust family members in certain instances. The offended or disappointed party might request more information or communication, or even a change in behavior, which the other family member perceives as a lack of trust ... and the downward spiral begins.
The key to avoiding such situations is regular communication and a discussion about expectations of how certain situations will be, or should have been handled. Agreeing to communication and review as a normal part of operations — before a situation happens — makes all the difference in a “professional” interaction and evaluation vs. a “personal attack.” When it feels personal, trust starts to become a factor.
3. What expectations do you have of business partners and other owners?
Another key to healthy family business interaction is talking through expectations of one another as owners in a business. In a non-family business, job descriptions and performance evaluations are the norm. And while they may not be done well or conducted often, those tools establish the expectations people have of one another. But when it's family, it feels awkward to formally frame what we expect of one another, partly because we have this informal, historical relationship. If your family business, as recommended in the case study, forms a board to manage the future of the asset, what is expected of a board member? What is expected of an owner? Answering those questions, perhaps as “homework” before a meeting, will open up the communication and provide opportunities to get on the same page about how you as a family see the future and what you expect of certain members in achieving that future.
The investment in all of these areas is one of time. Taking the time to approach the family business — as if you were not one — offers good preparation for enjoying the fruits of working with family members.