FOBA 2016: Experience and insight into family-business dynamics

More than 70 percent of family-owned businesses don’t survive, but for those that do, sorting out the details can make a big difference.

Unlike the traditional office composed of employees who might never fraternize on the weekend, families that work together also break bread and celebrate holidays.

Two-thirds of all the businesses in the world are family-owned, and they created more than 70 percent of the global gross domestic product and more than half the world’s jobs, according to the Family Firm Institute, a membership organization serving professionals who work with family-owned businesses.

The largest family-owned business in the U.S. is Walmart, but Delaware boasts its own family-business giants like DuPont and W.L. Gore, and 98 percent of Delaware farms are family-owned. Their crops land on grocery shelves across the country and around the world.

But whether you’re a large corporation or a family farm, the challenges are much the same. To get an idea of where family businesses should focus, we spoke to a few Delaware business leaders.

Gail S. Levinson Licensed Clinical Social Worker (LCSW) Wilmington, Del.

On the work/family balance: I believe that the overarching challenge in navigating a family business is how to balance family/co-worker responsibilities and boundaries. How do family ties and obligations impact the co-worker, co-owner, manager/subordinate relationship? How well can people who may live together or celebrate holidays together keep these integrated roles separate from the workplace? Family-generated disagreements are best left at the business door and out of the awareness of staff and customers.  The more intimate the family connection (i.e. married couples vs. uncle and niece) the more potential there is for blurred boundaries.  However, the better delineated the expectations and open lines of clear communication the more chance there is of having a successful family enterprise.  Consider seeking outside counseling or coaching before situations escalate which can put the family and business in jeopardy.

Neil B. Glassman
Attorney, Bayard, P.A.

On the legal details: Representing family-owned businesses is rewarding and challenging. Counsel helps the business owners achieve their goals, while addressing the broad array of legal issues any family-owned business faces, which often is complicated by family dynamics. Besides the usual legal matters involving tax, governance, employment, contracts and industry regulation, counsel must focus the owners on succession planning, not just customary estate planning. Importantly, when generational disputes threaten the business’ functionality, each group of interests should be represented by experienced counsel to ensure effective communications critical to achieve a new consensus, which more often than not is possible.

Margo Reign
Business Advisor, Small Business Development Center (SBDC)

On bringing in the next generation: When a business owner has children they are often anxious to bring them into the business once they have finished college. However, this needs to be well thought-out and planned, especially if you have other partners. First have them work somewhere else full time for three to five years. This gives them the experience of working somewhere they can be fired. It allows them to see other ways things can be done and they can bring new ideas back to the businesses. Thoughts of entitlement are eliminated with them and existing employees.

Heather Shupe
President, Delaware Chapter of Society for Human Resource Management

On hiring family and the necessity of HR: HR is HR but the size of the company and company culture play into the vision and strategy. For example, some “˜family-owned’ small businesses believe in hiring family members and keeping it in the family. Whereas, some do not believe family and business should intermingle. There are not any right or wrong answers on hiring family, it truly depends on the culture of the business. However, the HR functions should be fair and equitable to all employees. Many small businesses question when and why human resources (HR) is needed and what the HR infrastructure looks like for small business needs. There is a difference between HR functions and the HR professional. It is the HR professional that aligns the strategy, vision, culture, policies, and procedures to the functions of business, people, and compensation management. This becomes the infrastructure of the HR department.

Robert Freed
Director of Tax Services
Santora CPA Group

On the numbers: There are myriad other considerations which need to be addressed even before you open the door to a family-owned business.
How will your business be structured for tax reporting purposes? Should the business be a corporation, partnership, limited liability company, or some other form of ownership? Each type has its advantages and disadvantages.
Obtaining the proper licensing in the state and or locality where the business is operating is paramount to a successful business. After all, you don’t want to get shut down for an unlicensed business before you get started.
If you will have employees, proper documentation is required to be kept on file showing employment eligibility verification. Creating a startup budget of your capital needs will help the business get off to a good start. Will the business rent space or perhaps purchase a facility? The business will no doubt need computer equipment for keeping records, tracking invoices, maintaining inventory etc. Forming a relationship with a banker is important since the business may need to obtain financing for the startup. Having a good accounting system will help you run your business more efficiently. In any new business a budget will help you control expenses and thus maximize profits.

View the 2016 Family-Owned Business Awards Finalists here.