Owned Business: A Path to Success and Succession
During this holiday season with heightened focus on family, it is also important we remain vigilant to our business’ well-being. The USHCA is an Association built upon family values with many members from family-run companies. Your growth, stability and longevity are important to us as both, a family and a business. We hope this month’s highlight on family-owned business will help you protect and sustain both worlds successfully.
As a family-owned business, it is important to understand how matters of family and business can successfully operate in tandem. A family-owned business operates in two universes –a personal universe encompassing family and emotional matters, and a corporate universe encompassing finances and business matters. Both universes, while relying upon each other, must work somewhat independently yet fully cooperate to ensure stability and success.
When starting a new company, both universes must be considered. The same factors must be recognized throughout the business lifetime, as challenges could emerge from one universe which may become a threat that could affect both business performance and work-life balance among family members. It is vital to start making wise decisions before these situations arise.
Initially there is no differentiation between the two universes as the founder is both an individual and a company. As the company grows in profitability and complexity, challenges appear which may create a mixture of emotion and business that may seem inseparable to the family immersed in the company's operations. To prevent these problems from arising the two universes must apply specific tools to address emotions in one and business challenges in the other.
Addressing the Emotional Universe:
The founder’s first step should be defining the desired outcome in the emotional universe. Assess family relations and potential issues that might interfere with the business. After the assessment, a family constitution (a set of rules) should be put in writing. The roles of family members working in the business must be clearly defined. Rules for family members who are inactive in the company’s operations must also be defined and included. It is important to also outline how the business will be governed by a Board of Directors.
Once complete, the constitution must be communicated to and signed by all family members whether or not they are currently active in the company. A governing family council should be implemented to oversee compliance with the constitution and determine the “head of household” in terms of business succession. The main function of the constitution and the council is to separate emotions and business succession from other company matters, with the ultimate goal being family harmony while everyone performs their agreed-upon responsibilities.
Addressing the Corporate Universe:
Initially founders tend to make all corporate decisions unilaterally. Their main concerns are commercial and financial, rather than a holistic overview of all operations. The need for advice from an independent expert often does not become apparent until it’s too late. This generally occurs after a critical event, such as fraud or compliance failure. Companies are built on their founders’ strengths without consideration to what may be weaknesses in experience or expertise. Understandably, we do not know what we do not know. These unknowns can eventually threaten the company’s success. A successful business recognizes it needs help solving, and ideally predicting challenges that may arise in areas where in-house expertise may not be as strong.
One of the best steps is to establish a consulting Board of Directors where the owner still holds the final decision after hearing the experts in different fields in the boardroom. Next step is consolidating a corporate governance model where the Board’s charter is defined, with clearly defined roles, responsibilities, member profiles, and governing structures are crafted. Also included should be the Board’s operational protocols and the information system that allow members to make the best possible decision with the available information. This information is useful for on-going company operations and allows for consideration of established internal processes and procedures and their applicability to growth and longevity of the company.
A Board inclusive of balance and diversity will include members with technical capabilities, field expertise, but also diversity in gender and race to offer the best collective experiences and expertise.
As your company grows there are many tools to assist you in establishing and managing guidelines for family decisions, risk avoidance and financial security. The USHCA has many professional service members which may assist you with the best solutions for the protection of your family and business. Please feel free to reach out to us should you have questions or would like a list of USHCA partners.
We would like to thank CleverBoD and their partner Commendam Trust Services for their contributions to this month’s newsletter. With years of expertise and numerous solution vehicles available for our membership’s corporate structures, please do not hesitate to let us know if you wish for their contact information.