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4. Separate Family Dynamics
Generally speaking, the more independently the business can be operated as a separate entity distinct from ‘family’, the better the chances of survival through the next generation. Operating at “arm’s length” means that business decisions and actions are more aligned with the best interests of the company, structure and process is kept objective and transparent, and impact of family politics is minimized (notice I did not say eliminated). Managing and operating the business as an ‘extension of family’ can often be a recipe for disaster.
While family politics are present to a certain extent with any family business, they can become particularly heightened when the business is being sold or passed down. Fair doesn’t mean equal, or versa-visa. Every family and set of circumstances is different, and the best you can do is try to address the issues objectively and consistently. Imbalances are inevitable due to family member involvement in the business or level of influence, proceeds from the business, future estate considerations, etc. The sooner you establish structure and ground rules to address contentious family issues or inequities with ‘handing down’ the business, the better. Typically this can be done without outside professional help to provide structure and ensure objectivity. The fundamental starting point is a Will, and should extend to other instruments as dictated by family circumstances. Also, letting things “take care of themselves” after you’re gone should not be an option. Family infighting, hostility and separation are NOT the legacies you intended to leave.
Possible initiatives to mitigate your risk…
- As much as possible, maintain a clear separation of family influences on day-to-day business operations.
- Use outside professional direction to establish clear structure and ground rules for the transaction and in positioning the business for transition.
- Where able, engage all family members that will be directly impacted by the decisions in the process to ensure their input, understanding, and buy-in.
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