How to better prepare for changes in the dynamics of your family business

Small and midsize businesses are particularly vulnerable to life altering changes. Successful business leaders include contingency plans in their business for such events.

However, certain business disruptions — serious injury or disability to key personnel, loss of a spouse or other unexpected “life altering” events — may come as a surprise, especially in a family business.

“Having had the important conversations ahead of time, you are better prepared to deal with significant changes when they occur within your business,” says Betty Uribe, Ed.D., Executive Vice President at California Bank & Trust.

“I have personally witnessed during this economic downturn that the businesses that weather the storms are the ones that planned for change ahead of time and remained flexible to changes as they came,” she says.

Smart Business spoke with Uribe about key points to remember when there are changes in the dynamics of a family business.

Why can these kinds of disruptions have such an impact on family business?

People do not plan for life change. We think we are going to live forever. We think our business is going to last forever. We think our partners are going to be our partners forever. We think our customers are going to be our customers forever.

Normally a business leader is able to keep personal issues separate from the organization’s operations.

But during a divorce, for example, if both individuals are involved in the company, whether in day-to-day management or not, such change begins to infiltrate the business.

This, in turn, affects the decision-making and the future of the business, and has an impact on employees.

How does emotion play into these kinds of situations?

You have to try to remove emotions from the decisions you make about your business, which is difficult for any business owner — family business or not. The owner has created the business from his or her sweat and tears, so it becomes almost like his or her child.

In addition, changes in a family-owned business can be harder because of the emotional ties to the business. You do not necessarily treat a family member as an employee and in doing so, instead of helping him or her grow, you may end up enabling weaknesses.

What planning would you recommend family business owners make prior to changes?

As a smart business owner, plan before emotion and turmoil kicks in. Create a board of directors that can deliver objective third-party feedback.

Consider including your banker, CPA, business attorney, insurance agent, etc., in regular business planning and strategy meetings.

An independent board can help put together a business strategy, which includes areas such as business transfer and contingency plans. You know in case of fire to take the stairs and go out the back door, so why wouldn’t you adopt contingency plans for your company?

By establishing plans and controls in advance, you are in a better position when disruption occurs.

During a divorce, one of the first things an attorney will say is to keep your children out of the conversation and decision-making. So, treat your business like that child and keep business operations separate.

The same thing goes for succession planning. You need objective opinions, because the fact that your child is a competent individual and business owner does not always make him or her the best successor to manage your business.

The chosen successor must agree with your vision for the business, in order to truly preserve your legacy.

You may not be able to plan for everything in your business but having a plan in place allows you to proceed with minimal disruption.

That plan may involve limiting the number of family members in management, or turning to selected professionals on your board in decision-making roles so if your children suddenly have to step in and take over the management of the company, they will have the appropriate assistance in place to help them navigate complex changes.

Preparation is the best way to avoid disruption. Planning is essential to insure your business lives on from generation to generation. ●

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