For most large businesses, the personal financial needs of their shareholders, partners or members are of little concern.  Obviously, there is a market incentive to maximize the value of the company, thus enriching the owners, but the impact that the income or appreciation of the company has on the shareholders does not have to be a principal concern of management.  The exact opposite is true for the family business, where the finances of the company and its owners are almost inextricably bound.

For the small enterprise where ownership is concentrated in a tight circle of family members, the challenge of balancing the needs of the business and its owners is somewhat easier in that there are typically less barriers to communication between the owners and management.  In fact, they are oftentimes the same individuals.

For larger, more mature organizations or companies where ownership has become more dispersed to include non-active owners and professional management, it is probable that management has a very limited understanding of the financial needs of the owners or of their ability to satisfy these needs from sources outside of the company.  Owners are likely reluctant to share too much of their personal situation with “outsiders.”

Regardless of the size of the family business, there are going to be instances where the owners are likely going to look to the company to provide cash flow.  These instances may be directly related to ownership of the company, such as distributions to cover income taxes generated by pass-through income or to help provide liquidity in the event of an estate tax liability upon the death of the owner.  The cash needs of the owners may also be related to more personal matters such as costs of education or retirement, purchase of real estate or other investments.  No matter what the reason, these needs can become a strategic problem for the business and should be viewed as such in the long-term planning of the company.

As much as possible, the needs of the owners should be incorporated into the cash flow planning and strategic goals of the family business.  Of course in order to plan accordingly, the owners have to plan for themselves and share this information with management.  In larger organizations, professional managers or distant relatives are often reluctant to inquire about the personal finances of owners.  In a family business setting, it is crucial that they overcome this reluctance.  Wherever possible, professional managers and outside advisors should attempt to identify and incorporate the long-term plans of the owners into the strategic plan of the family business.  These professionals may also need to consider if they should take on an education role with the owners in order to facilitate proper consideration for the challenges to be faced.

Family business owners, managers and professional advisors must always be mindful of the unique nature of the enterprises they serve.  While this uniqueness can be made into strength, it also can create special and challenging problems that must be addressed if the business is to prosper and thrive for generations to come.  Communication, education and planning are key elements of success.

Sibling-partners’ relationships are among the most challenging in family businesses. Such siblings are often second-generation co-owners of an inherited business. This means

• They may not have had a free choice as to who their partner would be
• They may be 50/50 owners – a demanding arrangement under any circumstances
• Finally, they have a lifetime of emotions and experiences to deal with in their relationship in addition to the demands on all business partners.

The strains on brothers who are partners may be even greater than those on other configurations of sibling co-owners. Business founders are often competitive and dominant males. Sons may well emulate such founders’ traits. This can pit brothers, who will someday become partners, against one another throughout their lives in seeking approval and jockeying for position.

These issues go back a long way. One of the earliest stories of Western civilization is about brothers who ran into difficulties in the “family business.” Considering that case (tongue-in cheek) may be interesting.

Case Summary: Adam & Sons. Adam ______ was a pioneer in the emerging field of agriculture. He and his first wife, Eve, had two sons: Cain (the older) and Abel. Cain joined his father operating the core farming business. Abel was assigned the secondary, low-growth herding division. As a result, Abel did not work with his father and older brother on a daily basis. Abel’s contribution was also viewed as marginal compared to Cain’s burgeoning agri-business output.

In Adam’s absence, the brothers were each asked by the critical Backer of the family business to make a presentation on his branch of the enterprise. To the older brother’s amazement, Abel’s presentation was well received and Cain’s was not. Cain’s anger was evident. He asked Abel to meet with him in the farming division’s fields and there killed his younger brother. The Backer withdrew all support from Cain; he was ejected from the family firm and spent the rest of his life as “a restless wanderer on the earth.”

Lessons: What lessons can we learn from Adam & Sons? I’ll list a few here. But I hope that you’ll add to the insights as you respond to this post.

•Work together. Separation is frequently a strategy for dealing with tensions between brother-partners. Each brother takes responsibility for a distinct set of functions, products or services (e.g., farming vs. herding). This minimizes the amount of collaboration required and can be useful. But there are inevitably occasions when joint decisions have to be made or a common front has to be presented to outsiders. If each brother has been isolated in his silo (or sheepfold), long-avoided interpersonal issues can flair up just as important business demands have to be confronted.

A balanced mix of distinct and collaborative management roles will serve brother-partners best. A conscious effort should be made to partake in joint management on a regular basis In addition to any specialized roles. The benefits of this include a heightened sense of solidarity, enhanced skills in joint decision-making and a venue for interpersonal issues to arise and be addressed.

•Grant equal access. “Working together” should also apply to brothers’ interaction with their founder/father or mother. If one brother has far greater access to the “Adam” in the family, the seeds of presumption, jealousy and conflict are being sown. Practical day-to-day considerations may tend toward an unevenly shared parental relationship. But long-term issues of cohesion and collaboration demand purposeful attention to maintaining a balance.

•Communicate courageously. Someday, someone’s ego is going to get a shock. Someday, someone’s sense of fairness is going to be violated. Someday, childhood resentments are going to resurface. (After all, childhood isn’t really Paradise.) That’s when the brothers have a choice. They can talk about deep and difficult things. Or the blood can flow.

These lessons may be hard to apply, especially the last. Help may be needed from family business advisors and others. But successful brother partnerships create special demands. They also offer special rewards when the demands are met.

Conclusion: The primal brotherly business conflict had an extreme outcome. But other than that, it provides a paradigm for much that has followed. Tensions over public recognition, paternal favor, management roles and simple greed have crippled or destroyed many second-generation family businesses. Well-known names speak to the problems that so often arise between brother-partners: Ambani (Reliance [India] conglomerate), Dassler (Adidas and Puma), Koch (Koch Industries) and Gucci are among the most prominent.

Negative outcomes are not universal. Names such as Warner, Brooks, Lehman and Wright testify to the potential of brothers working well together. But what all of these sibling-partners – successful or not –have in common with Cain and Abel is intensity. Feelings and history go far deeper and mean much more for brothers in business than for other partners. This may yield exceptional trust, loyalty and compatibility – or it may mean sharp envy, grudges and misunderstanding. (The writers of Genesis apparently thought the latter more likely.) But, either way, brotherhood can’t be ignored.

That time of year has come and gone again.  The office parties, family get-togethers, and buying presents are over, and tax planning for the year has begun.  It just does not seem like there are enough hours in the day or days in the week to accomplish it all.  But, it is important to spend some time after this end-of-year madness to focus on areas that may have gotten away from us during the lion’s share of the year.  Especially for family-owned businesses, the need for tax planning includes both personal and company planning coupled with investment and estate planning, as well as some issues that you may not have even considered.  So say goodbye to the eggnog and let’s talk tax planning.

As a refresher, here are some items to add to the list when meeting with your advisor:

First, it is important to talk about the year the business just had.  Was there a profit; if so, how large?  Did anything happen during the year that would affect the value of the company?  How do the answers to these questions affect the need to review your estate plans for the current year?  There may be a need to assess the value of the company; what are the current laws and what strategic plans should be implemented to successfully avoid any estate planning pitfalls based upon the new company value?  You have worked too hard to build a successful company, so it is important that you maintain that value through solid, accurate estate planning.  Estate planning considerations are always a critical area of attention when meeting with your advisor.

Assess the family’s role in the business. Who is coming up in the ranks to take over the business?  Are the family members enjoying their current roles?  Who is following them?  Think about how you will educate the next generation.  Are they natural successors or will some need to be nurtured?  It is important for the younger family members to be exposed to all aspects of the business to learn how they all work together.  Are there some natural non-family business owner candidates?  Identify them early.  Succession planning is critical to the longevity of the business.  Identifying the future leaders will allow the business to continue in existence for many years to come.

Review the ownership structure. Are there owners within the company that want out?  Maybe they are interested in moving to a different part of the business.  Make sure you are maximizing everyone’s potential.  There is nothing worse than having the business get stuck in a holding pattern because owners are too afraid to act.

Assess the governance or advisory panel for the company. Know what the strategic goals of the company are and ask yourself; will this advisory board allow us to attain our goals?  Can it be stronger?  Will this governance board enable us to get to the next level?  If not, how do we change it?

Revisit the family value model.  Your company was based upon a premise of doing good work and being successful to allow you to pass some of the benefits on to others in the form of charitable giving.  Make sure that successive generations of your business know the importance of that value so that they, too, can continue the tradition.

Oh and, of course, leave a little time for tax planning as well.  Make sure you address the critical tax issues that may affect your company this year.  You may not be able to answer every question, but at least it will provide good food for thought.  So remember, the next tax planning meeting should not be all about taxes, but about many of the issues affecting your business and your family.

What would the producers of Jon & Kate Plus 8 have done if it was Kate who left, and the less-catchy new title would be Jon Plus 8?  Marketing loves rhyming and/or alliteration, so it was crucial the title still had some pop, even if Pop was no longer in the family.  And so it goes, divorce affects not only the family, but sometimes the family business, in ways one can’t even imagine.

The Reality of Divorce in a Family Business

Okay, you’ve got me.  A reality show isn’t the most “realistic” example of a family business, but the points can still be made.  And in this case, a divorce could have caused immediate dissolution of the family business, and all earnings from the show, speaking engagements and other perks (e.g., vacations, clothes and other goods from sponsors).   Fortunately for their bank account (and unfortunately for anyone with taste), divorce and associated scandals initially propelled additional interest in the show and the subsequent “new” offering of Kate Plus 8.  The family business grew in other directions, and its initial “customers” of other young families enjoying triumph overcome struggle in raising two sets of multiples would be replaced by a less stable customer base of those seeking pleasure out of the dissolution of the marriage and fallout the children may suffer.

Your Family Business Mission Statement: Changing with the Times, or Just Contradictory

Divorce statistics, well known to Americans at around 50%, make it pretty clear that just avoiding divorce is not likely a realistic strategy for protecting your family business from business turmoil.  Being legally prepared as people become part of the family (and family business), and business planning in general, can go a long way toward minimizing the damage.  But it is often not what is thrown at one in life, but how one handles it, that reveals what a person, or a business, is made of.  Aside from turning a profit (which should be the goal of every business), what did Jon & Kate Plus 8 initially set out to do?  Was it to help other young parents, show a growing family, focus on multiple births, or provide a warmhearted entertainment alternative?  Whatever its original intent, it became a three-ring circus featuring frat-boy dad, control-freak mom and 8 increasingly distressed little ones, provoking interest for all the wrong reasons.  How would your family business handle a difficult private situation such as divorce among two members of the family?

One of my associates, Eric Fletcher, recently sent a Thanksgiving blog post that someone else had written that basically discussed how thankful and appreciative he was for all that was around him.  I happened to think that it was a wonderful idea and decided to mimic that gesture with my own twist.

This past year has been, at times, tumultuous and at others extremely gratifying; it certainly has been a roller coaster year in our family.  Before Thanksgiving came I had given thought to expressing how thankful I was for good health, our new home and especially our new grandson.  As we sat down at the table, my wife of 33 years spoke first and said exactly what I wanted to say, but a bit more eloquently.

The gentleman who wrote the original blog post listed a number of items that he was grateful for, and all of them certainly worthy.  But, as I look back and reflect upon that day, giving thanks with four generations present, I know that the one thing I am more grateful for than anything else is family.  We have given and received so much from each other, epitomized by the simple act of great-grandfather holding great-grandson in his arms.

So, all of us involved in family business have this wonderful institution, the family, that we have to be grateful for.  As the business has grown and changed and as the generations have succeeded each other; as we have fought and argued and disagreed with the direction of the business or as we have celebrated the business successes –  if it wasn’t for the family, the family business simply would not exist.

As I wander through another holiday season and another end to an eventful year, I plan to spend some time reflecting on all that my family has meant to me, through the good and the bad.  A quiet celebration of sorts, of family.  I hope that all of you in family business can take some time to do the same, despite the bad and because of all the good, and appreciate all that your family has meant to you.  Happy Holidays.

The section was referred to as the “CLASS Act” and it required employers to make available guaranteed issue long term care insurance that, while voluntary, would be funded through premiums set by the federal government.  It was quite controversial since there was a very real concern that the pricing would be inadequate and, with the mandate, the cost would end up on the taxpayer or employer.  The “CLASS Act” required that the Secretary of the Department of Health and Human Services (DHHS) certify that it was priced in an actuarially sound manner.  This summer, the Secretary, Kathleen Sebelius, indicated that the pricing looked inadequate and last week said it could not be done.

Taxpayers and employers have probably been saved an expensive plan, but it does not mitigate the very real need to look at long term care insurance within the family business.  Quite often, the expectation is that salaries or other compensation will continue during retirement for family members – often including health care expenses.  Long term care can run $100,000/year in the Washington, DC area and it behooves companies to consider establishing benefits of long term care insurance for executives and family members to ensure that such an expensive burden does not fall on the business: long term care insurance can be set as a tax-deductible benefit which is not taxed to the employee, either for premium or benefits.

If you are interested in discussing your family business’ plan for long term care insurance, contact Sally Leimbach, CLU, LTCP at FranklinMorris, a specialist in this important area of personal and corporate planning.

1. Family problems. Physical, emotional and financial problems among family members can greatly impact the day-to-day operation of the business.
2. Informal culture and structure. For many businesses, having a laid-back culture is a positive. However, the informal structure and culture found in many family businesses can equate to a lack of documentation, policies, and defined strategy and goals.
3. Pressure to hire family members. It can be difficult to resist the pressure that comes along with requests from family members who want to join the business. This becomes especially complicated if they lack the basic skills and experience needed for the position.
4. Lack of training. The informal culture found in many family businesses can result in a lax approach to training new employees, whether they are family members or not.
5. High turnover of non-family employees. Non-family employees may feel that greater opportunities exist within the business for those who are a part of the family and may grow tired of the culture.
6. Sources for growth. A huge challenge for family businesses can be determining where and how to get the capital and resources needed to grow the business.
7. Lack of an external view. While family members may not always have the same opinions, they often have similar upbringing and life experiences which may lead to a uniform view of the business. Businesses need to have external views of their company and their competition in order to thrive.
8. Misunderstanding the value of the business and how it is to be divided. Owners of family businesses may have varying opinions on the value of their business, or even worse, they may have no knowledge about the value of the business and what things contribute to or detract from that value. Further complicating this matter is determining how to split the profits of the business or owners’ stakes.
9. Who will take over the business? It is important for family businesses to plan ahead for business succession. Many family-owned businesses do not have a plan in place and this can be a source of heated debate and intense family politics when the time arises to select new leadership.
10. No exit plan. Family businesses often lack a defined strategy for what will happen if an owner wants to retire, sell the business, or transfer responsibility. This goes hand in hand with succession plan issues. All businesses need a plan for the future.

What challenges do you face in your family business? Or, have you faced the challenges above and succeeded? What worked for you and your business? We would love to hear your insight and experiences.

After a few moments of silence, one family member broke the ice by saying he felt his sister wasn’t grabbing the reins fast enough. The sister reluctantly acknowledged that might be true and admitted that she felt intimidated at times by her father’s business success. Mom chimed in with her concerns about Dad’s interference in day-to-day operations and how that made it more difficult for others to take responsibility. Dad expressed a few doubts about whether he really wanted “out.”  And by that point, this family was having a real conversation.

That family meeting illustrated a bedrock principle:  One of the most important things a business family can do is prepare themselves for the conversations they don’t want to have.

For a family business, success or failure often depends on the ability to engage in productive dialogue with each other. Susan Scott describes this concept superbly in her book, Fierce Conversations. She asserts that “doing business” is really just an extended series of conversations with other people. And for those conversations to be meaningful and move us toward our goals, they must be “fierce.”

A fierce conversation is not about adversaries pushing for their position, but about members looking at issues together, striving for a more complete understanding. In a fierce conversation, Scott says, we must “interrogate reality,” separating out hearsay, speculation, assumptions and the party line, to get to the truth of what’s really going on.

We must be clear about our purpose and what needs to be accomplished. We must keep our egos in check, acknowledging that everyone has a unique perspective and that each is valid. When we tell ourselves, “he doesn’t know what he’s talking about because…” we miss important information. That someone who “doesn’t know what he’s talking about” might be the person who offers insights we couldn’t see on our own.

Finally, when we “come out from behind ourselves” into the real conversation, we provoke learning in ourselves, deepen the relationships that are important to us and strengthen our ability to tackle challenges head on.

Think about a conversation your family business needs to have, that you’ve been avoiding.

1. What’s preventing you from having this conversation?
2. What needs to change for you to approach this conversation in partnership rather than as adversaries?
3. If you were in another family member’s shoes, how would you see this situation?
4. What would you like the outcome to be?
5. If the situation were resolved, what would be different for your family business?

If you want to see real change in your family business, change the conversation and make it fierce.

The 4th Annual Brain Aneurysm Race for Awareness 8K in Memory of Timothy P. Susco was hosted on Saturday, October 1st.  The race originated in 2008, as a tribute to the memory of my nephew who passed away at the age of 25 due to a ruptured brain aneurysm.  The race raises donations to support brain aneurysm research and organ donation awareness programs.  However, this race is more than just a memorial to my nephew, it is our family business.  This race has become much more than just a one day event, it is now a lifelong endeavor that provides our family the same purpose, excitement, and challenges that face family businesses each and every day.

The race was the brain child of my sister-in-law Nancy, Tim’s mom. I call her our founding member.   She knew how important is was to keep Tim’s memory alive and, if possible, to give back to the community with the hope that other families would in some way benefit from our commitment to these causes.

Like any business, our family first had to decide what to do and where to do it.  Since Tim was a runner, we decided that a race to raise awareness and donations would be an appropriate tribute. And naturally the race would be held at the high school, his alma mater.

Next it was time to conjure up support from our family members.  Having a pretty nice size family, it was quite easy to convince 15 other family members to help with this great cause. Our group grew quickly and everyone had an important  role to play, from my eighty year old parents down to their five year old granddaughter.

Like any family business, initial capital needed to be raised to cover the expenses until donations began to roll in.  The first year provided our family with many challenges.  Having never run in a race let alone plan one, we were faced with many unexpected obstacles that needed to be overcome.  Despite these challenges we were able to complete our goal, and we definitely learned a lot along the way.  We liked having meetings to discuss what worked well, and what didn’t. These meetings became a useful tool which helped us plan for subsequent years.  We found that we all work well together, with each one of us having a different skill that complemented one another.  And certainly, we had our disagreements. With meetings of up to 15 people, we could, at times,  have 15 different thoughts on a particular matter.  But no matter if we agreed or not, we all knew that we were working toward a common goal, and we would remind each other of that real focus.  It was that honest feedback and our ability to keep one another in check that helps keep the race thriving today.

I have seen it many times that a family business loses its real focus and it is at that point that the business may start to flounder.  So take some advice from our family and keep the focus on the mission and you will run a successful company (or race).