Hints and tips for effective family business dealings
January 2019 - Entering into, transitioning or transacting on family business matters can be an exciting time for all involved.
There are some great synergies, experiences and opportunities created within a family business.
However, even the most positively intended and perfectly executed transactions can be challenging.
Preparing in advance assists you to navigate through tough times and protects the matters close to everyone’s heart. Trying to resolve matters when emotions run high will become much more complex.
Here are our top tips for engaging in family business related transactions.
Prepare documentation as though you were dealing with an external party:
Consider relevant agreements to deal with the same matters that would be covered in any other business – entry and exit, death or incapacity, restraints, voting and dispute resolution, involvement of non-family stakeholders and so on. Family conflicts occur even in the healthiest businesses. Agreeing in advance with supporting documentation can help mitigate any damage caused by conflict.
Ensure that legal documents are in place and all parties understand and are aware of what they have agreed to.
Obtain independent advice and consider the advice provided to you:
It is important that each party clearly understands their access to profits and their managerial responsibilities. Separate advice on each party’s circumstances can assist.
Discuss these matters with your spouse so that they are aware of the agreements made. This helps manage ongoing expectations of all parties.
Protect family by planning for the worst:
Ensure adequate insurances are held on key persons, and personal insurances and business insurances are up to date.
Where possible, plan a way for the business to operate if something unexpected pops up that affects family members. Things such as having reliable advisors that can step in, processes and procedures documented for temporary staff, and having a key contact list handy.
Clearly define roles of family members:
Agree on who will deal with staff, suppliers and key stakeholders and how they will do it. Maintaining professionalism will help the business gain traction and support of all interested parties.
Clear communication channels and reporting lines for non-family members of staff will ensure that the staff are able to perform at their best, and avoids any mixed messages.
Each family member involved will then have a clear understanding of their contribution of the business. Areas of responsibility should align with the skill set of each family member.
Ensure an equitable outcome for all parties, all the time:
Agree on dividend/distribution matters and ensure these are equitably resolved.
Agree on who is to be remunerated in relation to which specific outcomes.
Whether you are new to a family business, or an old hand looking for a new approach, your Cutcher & Neale Client Advisor is here to assist.