Family Business Conflicts and Tensions
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Family businesses do things differently! Every family business is unique, we know that but the tensions and strains in a family business to a greater or lesser extent are always the same. in this seminar we look under the skin of the family business and shine a light of some of the common areas of conflict and stress. The truth is out there - you are not alone!
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Family Business Conflicts and Tensions
- 1. Family businesses do things differently! Every family business is unique, we know that but the tensions and strains in a family business to a greater or lesser extent are always the same. in this seminar we look under the skin of the family business and shine a light of some of the common areas of conflict and stress. The truth is out there - you are not alone! There is a link at the end of this deck to the associated blog and webinar recording
- 2. Ian Priest
- 3. But we are a family business… Every family business is unique
- 4. Every family business is unique • Yes every family business is unique • But only because every one of us is unique • Family businesses come in all shapes and sizes from “one man band” sole traders to huge limited companies (Clarkes Shoes) • There are issues that every family business faces • What ever size they are
- 5. Family businesses do things differently • Yes family business do do things differently particularly the small and medium size ones • Family business are typically started to feed the family, to produce an income or as Peter Roper puts it “to fill the fridge” • Family business are driven by a personal morality not always seen in corporate structures. They “want to sleep at night” • The have a sense of loyalty to staff, suppliers and customers. They “do business with people they know like and trust” • Curtesy of Peter Roper The Family business Practice http://www.familybusinesspractice.com
- 6. The real difference is the people and the personal relationships • We need to look at the relationships The Business The Owners The Family
- 7. The real difference is the people and the personal relationships • We need to look at the relationships The Business The Owners The Family 1 2 4 3
- 8. The Business / The family • Which family members are in the business • Which family members are outside the business • Which family members “expect” to be in the business • What is the relationship / attitude of non family staff The Business The Family
- 9. The Business and the Owners • Are all of the owners involved in the business • Or are some of the owners remote from the business The Business The Owners
- 10. The Family and the Owners • Are all family members “owners” • Which family members expect to be owners/ • What about extended family – cousins – step siblings 2nd or subsequent relationships …. The Owners The Family
- 11. What happens when a shareholder dies? • Do you understand the consequences of death on a business – it can be devastating and not just because of the tragic loss.
- 12. What happens when a shareholder dies? balance sheet as at 31/10/2016 Company makes EBITDA £200k per annum after paying the directors £50k each net £,000 Asset liability Property 100 Machinery 50 Stock 10 Debtors 90 Cash 100 Supplier's 50 HMRC etc 30 Shareholders funds 270
- 13. The truth is out there - you are not alone! • Biz-smart has the contacts the resources and the people to help you deal with these issues • Make use of the website and webinar catalogue • Call one of the core advisors or select members for specialist advice
- 14. Ian Priest ACIB Independent Banking Consultants ip@independentbankers.co.uk or ian@biz-smart.co.uk 07917355751
- 15. BizSmart aims to help business owners of small and medium sized businesses to create value and scale their businesses through sound practical business support by providing insight, Clarity combined with a real determination to help you succeed. You can access webinars and presentations like this and more besides through our SmartRoom service here You can read the associated blog and listen to a live recording of this presentation by clicking here You can read Ian’s profile here
- 16. •Need a sounding board for your ideas? •Need to know what to prioritise? •Want someone to challenge your assumptions?
- 17. BizSmart – Where Smart people go to surround themselves with other Smart people, to gain business success.
Editor's Notes
- In todays webinar we are going to take a look at family businesses
- Yes I know every family business is different but how different is different – scratch the surface and most family businesses have the same issues, the same worries and concerns
- My good friend Peter Roper who has spent more years than he wants to admit helping family businesses breaks understanding what makes family businesses tick down into 3 easily digestible chunks. You have to understand the key drivers in a family business Filling the fridge – providing for their family, their employees and their families (intense loyalty) Want to sleep at night – they want to deal with people like themselves motivated by doing the right thing not ripping people off (the big banks could take a lesson or 3 from this) Do business with people they no like and trust – life's just too short to deal with scumbags. If you are a family business I am sure you will agree with these principles – if you want to deal with family businesses – ignore them at your peril Wher I want to concentrate however is not so much dealing with family businesses but rather with the tensjions and pressures within family businesses
- Using a simple Venn diagram its easy to illustrate these tensions and the issues they throw up. Most commentators on family businesses concentrate on the intersections of the circles
- 1 the family members who work in the business 2 the owners of the business who are not family members 3The owners of the business who are family members but don’t work in the business 4 potentially the most lonely of the lot particularly if its one individual the owner that works in the family business Running any business can be a lonely place – especially in family businesses you may not want or be able to confide in your spouse, your parents or your kids on the issues and problems – everything sits on your shoulders and its very easy to be crushed by it. If you are in this situation Biz-smart “smart Boards can be a great way to shift this burden in a completely confidential and non judgemental way
- So lets start breaking down some of these relationships Starting with the family and the business -This can be an enormous area of stress and tension, - you may have family members who have an expectation of being in the family business - siblings / cousins / nephews and nieces could all be growing up with an expectation of a cushy berth in the family cruise liner. In the business itself you may see really bitter resentment from long standing employees when cousin Johnny is given a job even though he’s a complete numpty – especially if cousin Johnny is put in a position of authority. You have to have a clear policy and manage expectations from an early stage – its no good thinking by the time they are old enough they will have lost interest! This is a real people management task at its worst – take a look at some of the webinars on managing people such as The 5 Behaviours of a Cohesive Team broadcast 1st November and available through the biz-smart website I recently dealt with a family business that was started by grandfather, father was now past retirement age but would not get out of the way, the eldest son was very dynamic and had great ideas but was unable to get out from dads shadow. Mom dad and the 3 children were all directors – although mom never set foot in the place. The younger siblings were effectively the accounts clerk and the forklift diver while the eldest son worked 16 hour days trying to run the buisness but dad insisted they were all paid the same. The eldest sons wife also worked ion the business in a management position with no real authority – a recipe for civil war if ever there was one.
- Lets move on to the owners Even if all the owners work in the business there can be conflicts and issues – for example I know a large transport business that past from father to his 2 sons. The sons wives hated each other so the sons rarely spoke even at work. I once met one of the Thornton's (as in toffee) the production director would find out that they were opening new stores when he saw it in the trade press. His cousin who was responsible for shop openings would not speak to him. The tensions can be because of business issues such as one or more parties wanting to exit and others not or they may be down to some family quarrel or imagined slight – we all know what families can be like In many ways it can be worse when there are owners outside the business – they will want to have a say in what's going on and particularly in dividend policy and remuneration for employed owners. You need to head these issues off as far as you possibly can – plan the divorce if you like before the wedding. get a decent shareholders agreement drawn up by an experienced lawyer one that sets out how things will be handled, basis of valuation etc its so much easier to agree thiese matters while you are still friends. If you have external owners consider a family charter that sets out how the family will interact with the company – who has what powers, who shares can be transferred to and what permissions are needed to transfer shares etc. If your business is of a reasonable size have a proper board structure with non exec directors to represent the interest of family members. – keep it business
- This is perhaps one of the most contentious areas – ownership and family dilution of shareholdings across generations and down the family lines can cause all sorts of issues. A large and very will known family business in Worcestershire has recently undergone a major upheaval which resulted in the MD (grandson) being sacked and taking his own company to a tribunal for unfair dismissal. He was 1/3 shareholder and was running the business a bit like a personal fiefdom. His two sisters ultimately got fed up and voted him off the board (they had 1/3 each as well) and then they sacked him for gross misconduct. Imagine for a minute a family business started by George who has 4 children each of them marries, one dies childless and leaves his 25% to his wife, one has 4 children so they end up with 61/4% each, another has 5 children so they end up with 5% each and the fourth has one son from his first marriage and 3 from his second but he also promised to look after his new wife's existing 2 children. Who is the major shareholder now? The son who died childless left his shares to his wife – she in turn left them to her younger brother who now owns 25% of someone else's family business and unless they act together he has the biggest say. Don’t leave these things to chance if you have a business that will pass down the generations make a will or set up a trust but make your wishes clear. I recently had to help out a family business – father and eldest son had worked all their lives building up 4 companies. Father now had dementia and son was running the business. Father had divorced and remarried and there were 3 step siblings who also worked in the business. Son expected to inherit the businesses and that his step sisters would be looked after from the rest of dads estate after all he had built the business up. Unfortunately they had a copy of dads old will it was not very well drawn up- it implied son was to get the bulk of dads shares to give him control but it was not explicit and was open to interpretation. Also the companies were not properly identified the will contained shortened company names and no company numbers so again space for challenge. There was known to be a later will which was a bit better drafted (but not much) but they could only find an unsigned photocopy of the newer one no one had any idea where the original was. As I said dad had dementia so no prospect of redoing the will and getting it right All these examples have multiple winners and loses – the winners will always be the lawyers whole inheritances can be blown away in legal challenges everyone else has to be a loser
- English law has a strange way of making death even more complicated for example if you are a company director and you and your partner are killed together in say a car accident. The law determines that the youngest was the last to die. If you don’t have a will that states to the contrary your holding in the family business could end up in the hands of one or more of your partners family. The impact inside the business can be potentially much greater
- Take this example, There are 3 siblings who own this business 33% each On 1st November one of the siblings has a heart attack and dies aged just 54 What happens now? Well his 18 year old partner now owns 1/3 of the business – do the other directors want him/her as an equal partner? The spouse could demand that the business be sold or broken up to crystalize the value of the shares – lets say the business is valued at 5 times earnings (200 +150 times 5 )= £1.75m so she wants a cool £583,333 – where are they going to get that from if they broke the business up they would only raise half what is owed. The young spouse could end up with all of the wealth with nothing left for the others. Again get advice don’t leave it to chance – get a good shareholders agreement in place, take out some life cover written in trust so that the cash is there to buy out the deceased's interest. Biz-smart can help you resolve all these issues – review the webinars catalogue – contact core advisors or select members or your existing advisors But don’t put it off you don’t know what’s round the corner
- Questions