A Few Helpful Tips for Avoiding Conflict in a Family Business and Keeping Your Goals on Track

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            Is the stress of working in a family business troubling you? Are you looking for some expert advice to help handle it?  Working in business is hard enough but throw a couple family members in the mix and it can get frustrating, so we’ve assembled a list of excellent family business tips to help guide you through it.

            Family businesses face all the same challenges that the average non-family business deals with, but they also have a few added issues that arise due to family relationships.  Questions like “Which family member holds the most power?” “Who is the primary stakeholder?” “Who is first in line to take over?” and, “Who makes more money?” often arise and create uncomfortable, challenging situations. 

Here are a few helpful tips for avoiding conflict in a family business and keeping goals on track, courtesy of gaebler.com. 

Communicate Early and Often

The best tool for keeping a family business focused on business is good communication.

Good communication avoids unpleasant surprises and can minimize the damage on potential family business crises by addressing problems sooner rather than later.

 

Take the time to ensure that good communication channels between family members are in place. It's a smart idea to conduct family-only business meetings at least twice a month. A family business meeting allows family members get together to discuss how the business is doing. Each family member can discuss their areas of responsibility.

Don't Make Working at the Family Business Mandatory

It's wise not to force a family member to join the family business. Let them know that it's an option but encourage them to consider other options.

If a family member gets experience somewhere else and then joins the family business later, that's a good thing. They will bring new ideas and fresh thinking – avoiding the insular thinking that often plagues family businesses and ultimately leads to their downfall.

Nip Family Business Problems in the Bud

When issues arise between family members, address them quickly.

If a dispute is not resolved early, it can turn into a much bigger problem. Be on the lookout for hostility or jealousy between family members, and deal with such issues directly as they arise.

Don't Take Your Work Home and Vice Versa

It's smart to distinguish between family discussions and business discussions and keep those conversations separate.

Don't have business meetings at the house, and don't have family meetings at the business.

Mixing the two together all the time is a recipe for disaster. The business, the family or both may fail as a result.

Hold Family Members Accountable for Results

In a family, the standard is often to forgive a family member when they make a mistake. In contrast, mistakes in business are not easily forgiven.

Accordingly, a family business must lay down clear guidelines: in the business, we are going to hold you accountable for your actions, just as we hold all of our employees accountable for their actions.

Every family member should have a detailed job description that outlines what they are expected to contribute to the business. Measure performance against pre-defined metrics so there is no ambiguity on whether desired results were achieved.

Treat Family Members and Non-Family Members Equally

If family members get preferential treatment, non-family members will lose their motivation to help grow the business.

Smart family businesses don't flaunt their ownership by giving family members perks that others don't get.

Do whatever it takes to make non-family members feel that they have the same opportunities as family members. Otherwise, expect your family-owned business to deliver mediocre results and lose market share to competitors.

If you can't treat non-family members equally in some area – for example, maybe they can't have stock ownership like family members do – make up for it in some other way.

Ask a Family Business Expert for Help

When in doubt, ask for help.

Family business consultants are well trained in dealing with issues that are unique to family businesses. They will provide you with advice on dealing with complex family business challenges. For more information on family business consulting, visit our website at ContinuityFBC.com.

Cheesecake Factory CEO Took His Family Business Nationwide; and It All Started With a Piece of Cheesecake!

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David Overton thought he was going to be a famous rock star. When that didn't work out, he decided to tap into his family's business and capitalize on their delicious products. Last week, David Overton was named a regional entrepreneur of the year by Ernst & Young as founder and CEO of The Cheesecake Factory.

The following article was originally published in the LA Times titled "Cheesecake Factory CEO took his family business nationwide." Click HERE to view the original article on LATimes.com.

The gig: David Overton, 66, is founder and chief executive of Cheesecake Factory Inc., based in Calabasas Hills. The publicly traded restaurant company has about 170 eateries, and last year it earned a profit of $95.7 million on sales of $1.8 billion.

Last week Overton was named a regional entrepreneur of the year by Ernst & Young.

Humble beginnings: In the 1970s his parents started a food business in Detroit, specializing in cheesecakes. "My mother got her cheesecake recipe out of the newspaper," Overton said. "She always wanted her own business, and she worked very hard. My father was great at sales."

A different drum: Overton started playing drums professionally at age 15 and helped put himself through college at Wayne State University in Detroit. He went on to UC Hastings College of the Law in San Francisco, dropping out during his first year to pursue a career as a musician.

At age 26, realizing he was not going to be a rock star, he moved to Los Angeles, where his parents had relocated their business. At that point the Cheesecake Factory, as they called it, produced more than 20 kinds of the cakes and other desserts to sell to restaurants and other wholesale accounts.

Turning point: "We knew we had the Cadillac of cheesecakes," Overton said, but they had a tough time persuading restaurants to take more than one or two flavors. So he decided to open his own restaurant in Beverly Hills that would also sell salads, hamburgers and other entrees. The cheesecakes were promoted as the main event.

"I wanted to prove to other restaurateurs that people would enjoy a restaurant with a large dessert menu," he said. "I thought if I could take my parents' cheesecakes direct to the people, it would do well and other restaurants would follow."

The first Cheesecake Factory restaurant opened Feb. 25, 1978. "We started strong," Overton said. "A line formed within the first 10 minutes. The cheesecakes were a huge draw. Back then, we had 12 varieties. Now we have 50."

Sticking with it: "Shortly after I opened our first restaurant in Beverly Hills, a relative congratulated me on the successful opening and told me I should sell the restaurant and go do something else," Overton said. "He said I could probably make $50,000 if I sold. Somehow I just knew I wasn't ready to sell — and 34 years later, I'm certainly glad I didn't."

New outlets: With the success of the restaurant, he started to evaluate locations for expansion. He said the best advice he ever got was to not jump at a site just because it could be gotten at a bargain price. "Never let the deal drive the site. Let the site drive the deal," he said.

Focus groups: He doesn't believe in them. When it comes to food choices, Overton makes the decisions. "My taste buds represent that of the regular people we have dining at our restaurants," he said. "If I love the food, it goes in the menu."

Portions: Cheesecake Factory restaurants are known for serving huge portions of food that is often high in calories and fat. Even the menus are huge. "We have always said that whatever America wants to eat can go on the Cheesecake Factory menu," Overton said.

But in the face of increased warnings about obesity, many diners want food that's not so fattening. Last year the chain introduced its SkinnyLicious menu of about 50 items, each with a calorie count under 590. That's not exactly diet fare, but it's far lower in calories than many of the regular menu items.

Has the initiative boosted business? "It's difficult to identify the exact impact," Overton said. "However, it is a very popular and growing segment of our menu."

The next generation: Overton is married and has three sons, none of whom want to work in the food industry. "I would have preferred for my sons to be interested in joining the family business, but it doesn't bother me that they didn't," he said. "They're all very creative, and I think it's most important that they pursue something that they love, like I did."

Still drumming: Overton has drums set up in his house even though he doesn't get to play them much. "I wish I could play in a band, but being the CEO keeps me busy," he said. "I am from Detroit, so I like to listen to Motown sounds."

Estate Tax- Scheduled to Expire at the End of This Year if Congress Doesn't Step In...

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This week, the U.S. Congress will be holding a hearing on estate tax, which is scheduled to expire at the end of this year if Congress doesn't step in.

Many advocates for smaller business say that estate tax, more commonly known as the “death tax” among small business owners, is owed to the government when transferring a business after the owner’s death. Advocates believe this threatens succession plans in family owned business.  

Currently, federal estate tax exempts the first $5,000,000 of an estate’s value and any assets of the estate beyond $5,000,000 are taxed at a top rate of 35%. If Congress does not step in by December 31, 2012, the federal estate tax will return to the level it was at in 2000 with a $1,000,000 exemption and a top rate of 55%. This will place many family businesses in a dangerous situation, forcing some out of business.

"Many small companies have non-liquid assets - capital that is tied up in real property, machinery and equipment - so heirs do not have cash to pay the estate taxes. Sometimes, a business must be sold - even at 'fire sale' prices - so the estate tax can be paid," Said Chairman Joe Walsh (fox.com). 

Many entrepreneurs from across the country recently testified at a hearing, explaining how these hikes would impact their personal businesses. President of the American Rental Association and owner of Taylor Rental Center, Michael Flescher, commented on the issue saying "under current law my heirs would be able to continue to operate the business... [and] would continue to invest in new equipment and to provide services to the community where it is located. If the estate tax reverts to the levels of 2000... the economic security of my heirs will be uncertain," (fox.com).

Is your family business worried about the future of estate tax? Let us know on the Continuity Family Business Consulting Facebook Wall, linked HERE.

Family Business Succession Will Become a Major Issue for Thousands of Enterprises and Families in the Near Future..

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A recent study revealed between 80 and 90 percent of US companies are family businesses, and over the course of the next decade, more than 40 percent of those companies’ top executives will retire (Family Business Review). What does this mean? Family business succession will become a major issue for thousands of enterprises and families in the near future. 

“With this massive change on the horizon, it’s safe to assume many of these companies will address succession by selling the family business or transitioning to the next generation. In addition, many family businesses contemplate a sale for myriad other reasons besides succession,” (MiamiHerald.com). Regardless of whether selling is or isn't the right decision, the process can be a source of tremendous stress and family conflict. Accordingly, it is important for families to have trusted advisors involved in the process to help family members understand the implications of a sale and how to make the most of it.

Here are five questions, provided by the MiamiHerald.com, to help your family-owned company navigate the prospect and process of selling. 

Why are you considering a sale?

It’s important to identify the reasons why you want to sell the business, because the motivation for a sale can have a large impact on the best course of action to take. For instance, if there’s not another family member or generation in line to take over the business, then a sale may be the best way to monetize your asset. By contrast, market opportunities may be the driving force, making the urgency for a sale more present. Other criteria could include divorce, death, family members’ seeking alternative career directions, or tax and estate planning considerations.

Is an outright sale the best choice?

Before hanging the “for sale” sign, consider strategic alternatives. In this regard, consult with your accountant, your attorney, or an investment banker. Depending on your goals, there may be a number of other options available to meet your family’s objectives.

For instance, recapitalizing the company could provide cash to the exiting generation (or exiting family members) while allowing the remaining family members to continue in management roles. If liquidity is not an issue, then identifying non-family members for executive management positions can address succession issues while allowing the family to retain ownership (and therefore the cash flow). And of course, if a sale does make sense, then be certain to engage the appropriate professional advisors to ensure you realize the greatest possible value from your family business as early as possible.

Are your decisions driven by emotions or good business sense?

Despite the prevalence of family members that work together, few can avoid the potential divisiveness that money and business dealings can have on their relationships. Whether it’s a case of siblings facing off with each other, cousins in conflict, or parents and children disagreeing, the emotions of a family quarrel can lead to bad decision-making that can have catastrophic economic impact on a family business. I have seen this more than once: As a result of ego clashes or a lack of common sense, much money is left on the table. And once again, one of the best defenses a family can take is to engage the right assistance. A corporate psychologist, family therapist, or professional mediator can often prevent emotions from hijacking a family business’ potential and ensure that equity and “cool heads” prevail.

Emotions can also affect owners’ sense of what a business is worth. While your business is your baby, prospective buyers are often uninterested in the characteristics you consider most significant. Many buyers are extremely disciplined in their approach to value. Look to your advisors to provide an accurate valuation and to negotiate without bias.

Are family members on the same page?

Families sometimes struggle during a sale because some members are risk takers and others are more conservative. One owner (or group of owners) may want to hold out for a premium price while another owner may want to take the first offer. As a seller, the investment bankers representing your company should engage all of the selling parties before going to market to ensure that everyone is on the same page, speaking with one voice and mindful of the same goals. Sometimes it might even be better if one family member buys out the other if that person will be an obstacle in the sale process.

Are you ready for what comes next?

The excitement of a deal and the lure of what looks like a windfall can distract business owners from the reality that, after a transaction, they will no longer own and control their family business. What will you do with your proceeds? What will you do with your time? Many successful small business owners aren’t ready to wind down after selling their companies, and they sorely miss the stimulation of running a company. They still want to be in the game. For other family business owners, a sale can mean their children, siblings, or spouses are left without a job. Still, for others a sale can mean their legacy becomes uncertain.

It’s helpful to contemplate and visualize how you and your entire family will move forward after the sale of your family business

The Importance of a Family Business Constitution

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It’s natural that in time, family businesses grow over multiple generations, which means the number of individuals involved increases. In addition to the number of individuals increasing, family member's expectations regarding the business may increase as well and related conflicts may arise.

Creating a Family Business Constitution can be an easy way to manage and deal with these conflicts if and when they arise within your family business.

Few family business owners have taken full advantage of this useful business tool. However, those family business owners who have incorporated a Family Business Constitution into their business have found that implementing a constitution has been a helpful instrument in preserving the legacy of the business while helping to sustain the enterprise for future generations.

A Family Business Constitution is not only an extra tip in the businesses success; it also engenders a sense of pride in the family and its business by linking the past, present and future generations with each other.

Here are a couple of tips to help get your Family Business Constitution started:

1. Document the mission, values, philosophy and principles that govern your family and its business, including the struggles of past generations. 
2. Outline the business’s strategy and its long- and short-term goals. 
3. Define a dispute resolution processes to deal with potential conflicts affecting the business and the family. 
4. Define the roles, composition and powers of key governing and other constituencies of the business, including key management, directors, shareholders and family members.

For a more detailed list of what a Family Business Constitution should include, click HERE, or call Continuity Family Business Consulting. For more information, visit ContinuityFBC.com. 

Rising Gft Tax Urges Small Family Business Owners To Plan for Succession

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Currently, an individual can gift, over his lifetime $5.12 million tax-free. Starting in 2013, the lifetime limits on gift tax will fall from $5.12 million to $1 million. This change in tax exemption rates between 2012 and 2013 could factor into your small business succession plans.

The complicated history of the gift and estate tax dates back to the tax cuts passed under President George W. Bush, starting in 2001. 

Those laws enforced by Bush gradually increased the dollar amount exempt from gift and estate taxes. Congress wrote the law to expire in 10 years, with the exemption reverting back to the old levels in 2011. In December 2010, the Tax Relief, Unemployment InsuranceReauthorization, and Job Creation Acts were signed into my by President Barack Obama as a compromise bill, extending the Bush cuts through 2012 and holding the gift tax exemption at $5 million ($5.12 million in 2012, adjusted for inflation). 

The compromise bill called for the lifetime gift tax exemption and gift tax rates to revert to 2001 levels of $1 million, starting in 2013. 

“Assuming a parent wants to turn over 100 percent of the business to his children, the best year to do it is in 2012,” (BusinessWeek.com). There are many other factors to consider in business succession including managerial roles, how the business assets will be divided up between the children, and whether the company founder is ready to give up complete control (BusinessWeek.com). 

Blair Trippe, Partner and Consultant at Continuity Family Business Consulting, says to also carefully think about voting control when transferring ownership of a family business. You wouldn’t want siblings who own and work in the business to be essentially working for their siblings who also are owners. Those not actively in the business may not be in a position to make good decisions for the business and hence shouldn’t have voting control. 

This exemption on gift tax expiration is the perfect opportunity to decide who will take the reins of the business and put the plan into action. Oftentimes business owners hesitate to make that call because they worry about whether their offspring can handle the money and responsibility, and whether they will be able to withdraw enough funds from the business to live comfortably in retirement. 

Blair Trippe also says it’s not just about saving on taxes. “Be sure not only to consider tax savings, but to consider what will be thought of as ‘fair’ in terms of diving up assets, and what will benefit the family most over the long term. This can be approached in many different way so it’s important to be clear on the intentions behind the transfer of ownership, not just the savings on the taxes.”

Transitioning a business from one generation to the next is probably the most difficult and complex process a family business will face. Contact Continuity Family Business Consulting to assist in the process. We work closely with estate planners, CPA’s, key non-family executives and family stakeholders both in and out of the business in order to develop a plan that works for both the company and the family. Contact us at 877-925-5149 or email us at info@continuityfbc.com.

Conducting Evaluations of Family Members

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Conducting evaluations of family members in family leadership positions can be extremely challenging.

There are several questionnaires available which assess various aspects of a family including standard psychological tests, values, personality assessments, etc. Some of these can be self-administered and managed via website by the company offering the product. The value in these questionnaires really lies in the personal interpretation of the data, which can only be done reliably if personal interviews by a trained professional are a central part of the assessment feedback.

At Continuity Family Business Consulting, we use tools such as genograms, our stakeholder map and psychological tests to manage the complexity of the business and the family dynamics. The genogram is a family tree/organizational chart that shows the relationships between all family members involved and their personal history’s.  The stakeholder map provides a snapshot of the family and family business systems and illustrates where each member of the family fits into the individual business, family, ownership and governance systems. 

The psychological tests help us figure out what the individual’s skills, strengths and competencies are, as well as what their role could/should be within the business. Some psychological tests can provide results which can be a bit surprising to a family member, so having a trained professional administer the test, evaluate the results and communicate their analysis is key.

Click HERE to download a copy of the Stakeholder Map, and HERE for more information on how Continuity Family Business Consulting and help bring your family business to higher levels of success. 

Crisis Management within Family Businesses

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Sometimes advance planning is not possible and family businesses must respond to a crisis. Continuity consultants can help family members make difficult decisions quickly by helping them analyze alternatives and clearly articulating the potential ramifications of different choices. Focused on continued business success, Continuity recognizes the importance of the family dynamics which often become more pronounced in crisis situations. 

Our experienced staff can help pull together a team of both existing and outside or interim professionals to address the crises.  We can also work with individual family members to help them deal with personal crisis which may impact the business.

For more information on Crisis Management within a Family Business, visit ContinuityFBC.com. 

The Importance of Governance in a Family Business

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The importance of governance, no matter how small the company, cannot be overstated.  

Formal boards, executive committees, and advisory boards develop and articulate policy, objectives and strategy.  They provide strategic guidance and are the most effective vehicle for resolving businessrelated conflict between managers, owners and other family members.  

Developing effective governance for a family business involves appropriate procedure (attending to the right priorities, operating by the right rules) and good structure (selection of the right people and roles).

Early stage family businesses may be struggling to develop good governance practices and may be wary of creating formal boards or engaging independent board members.  Helping these stakeholders understand and practice good governance as a first step towards board development can be enormously helpful especially as part of a succession planning process.  

Creating a first board, while retaining control, is a big step for many founders of family businesses and one which benefits greatly from independent advice. 

For more information on Governance and Board Development, visit ContinuityFBC.com.