Planning for Crisis Situations: Illness, Family Strife, and Breakups

If you own a family business, you will undoubtedly experience several people-related crises that may plague the business during its life cycle. Family conflict, divorce, illness, and premature death all represent potential threats. Excerpted from Master Your Investment in the Family Business are some tips and traps you should avoid in crisis situations.

Family businesses may outgrow the management skills of their owner or the actively participating family members, or may experience a failed succession attempt. Many of these situations can be managed to a successful result by way of proactive discussion and decision making that preserves not only relationships, but the investment in the family business as well.

Solutions to mitigate the impact of crisis situations include operating as a Market Driven Family Business and having a formal succession plan and proper documentation and agreements. Separating the life cycle of the family business leader from the life cycle of the business can be achieved by way of professional management and a sound succession plan, and is a key component in recognizing the business as a distinct entity that is not solely reliant on the family business leader. This approach provides the basis for stability of operations and longevity, in times of crisis or otherwise.

A qualified business advisor can be a useful resource for defining the components of the business life cycle, keeping it on track, and salvaging disaster situations. Even more important, there are many things that the family business leader can do proactively to avoid catastrophic situations.

Here are some things you need to know, tips, and traps for you to keep in mind:

Things You Need to Know

• People-related crisis situations have the potential to derail a family business and can represent a significant threat.
• Operating as a Market Driven Family Business and having a sound succession plan can greatly mitigate the impact of crisis situations on a family business.
• A good succession plan not only helps the business to continue to operate and move forward in a timely manner, it also communicates the wishes of the family business leader, eliminating the need for family members to struggle to determine what may be the best course of action at a time when they are experiencing heightened emotions or loss.
• Separating the life cycle of the family business leader from the life cycle of the business can bring focus to what the business needs to do to achieve stability and longevity, creating the opportunity to build wealth over a longer period of time. The two life cycles need not be the same.
• Proper documentation, including policies and procedures, as well as legal agreements, are required to protect the business from crisis situations, particularly in the instance of the breakdown of marital or common-law relationships.
• In the case of disaster, get help. A qualified professional advisor can objectively help to get the business back on track.

Tips

• Documenting your wishes for the business in your absence, by way of a sound succession plan or other documentation, makes your wishes clear and takes a considerable burden off family members.
• The best sign of a family business leader’s success is when a team has been built that can competently take the business forward, in times  of planned succession or crisis. A needy business represents weakness and missed potential.
• The professional management approach of a Market Driven Family Business can provide the safety net when family dynamics spiral out of control.

Traps

• Some family business leaders may have a need for the business to be dependent on them. This is not in the best interest of the business, and speaks more about the personal needs of the family business leader than the needs of the business.
• Regarding legal advice as an unnecessary cost of little value is a naïve approach. Sound legal advice, in terms of proper agreements, documentation, and advice to guide decision making can save a business from the financial ruin that can ensue in the absence of such advice.

Principle Mastery: When you view the business as a separate entity, rather than an extension of yourself, the opportunity exists for the business to move forward in a manner that is in its own best interest, and to the ultimate benefit of the family.

Excerpted from Master Your Investment in the Family Business, by Larry Frostiak and Jenifer Bartman. © Knowledge Bureau Newsbooks. All rights reserved.