Never expecting or planning for change
is a major risk for a business. Families
who own a business should expect and embrace change. They should also
control change as much as possible and
then communicate why a change is taking
place and the plan to make the change
effectively, says Rich Snebold, co-founder
of The Family Business Center at NexTier
Change can be difficult for family businesses because relationships and emotions
are involved, says Snebold. Some of the
most successful family businesses utilize
the outside advisers to help them work
through changes. Outside advisers can
benefit a company because they are looking at a situation with an unbiased opinion
and they understand both business and
personal issues and the investments
Smart Business spoke with Snebold
about how to plan for the unexpected and
to utilize the proper sources for guidance
to ensure the success of both the business
and the family.
How do personal changes such as death or
divorce affect a family business?
It is necessary to plan for key events that
may occur such as the death or disability of a business owner to create a peace
of mind for the family and the business.
A set of documents sometimes referred
to as a ‘family answer book’ should be
developed to alleviate some of the questions and stress of unexpected change.
This book should include a letter of direction describing the future of the business.
Copies of all important documents such as
a will, business agreements, tax returns,
etc. should be in the book.
A buy/sell agreement is needed if there is
more than one owner that details what will
happen to the deceased or disabled
owner’s share of the company.
These decisions should be communicated to the family as soon as the book is
developed. Conversations explaining the
decisions and the rational need to occur so
the family understands.
Divorce is difficult to deal with in a business, so an attorney should be utilized
when developing a company to plan for
such events. Expert approaches can direct
a company on what should be done if
someone who is no longer part of the family still owns a share of the company or prevent it before it happens.
How can a family-owned business prepare
for the retirement or loss of an executive
So often, business owners put everything
they make back into the business to make
it successful. Most owners would not have
enough money to live the lifestyle they are
currently living if they had to retire today.
Business owners cannot look at the business as their sole source of retirement
income. If a family business is passed
down to children, they should not be
responsible for financing their parents’
retirement. That can be too stressful and
strain family relationships.
Planning for retirement is easier the earlier you plan. A portion of the income should
be set aside in a retirement plan and outside investments to provide retirement
options in the future. Outside advisers can
help owners determine the best plan for
For business owners who have not
planned properly for their retirement,
there are plans that allow owners to put
large sums of money away for their retirement. The IRS has also approved the 419
plan which allows business owners to have
their companies pre-fund their future
health insurance premiums with tax
deductible business dollars.
How should a family decide the direction in
which the company is headed?
The most enlightened families put together a team of both family members and business experts to make decisions about the
business. They should determine what
products are needed to further the success
of the business.
New family employees are often the best
at developing new ideas because they are
looking at the business with a fresh set of
eyes. A forum should be developed to test
Only the key business owners should be
involved in the planning process. It may
also benefit a family business to bring in
employees who are not family members as
business decision-makers. After the planning process is complete, the plan should
be shared with all family members.
How can a company successfully separate
business and family?
There is no real way to separate the family from the business. The business
becomes a family identity. It is important to
enjoy the positives of a family business,
such as a family working together. A family
should separate things that may have a negative influence. Communication is necessary to make a family business successful.
RICH SNEBOLD is the co-founder of The Family Business
Center at NexTier Bank. Reach him at [email protected]