Common Problems in Family-Owned Businesses – How to Reconcile the Interests of All Family Members
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Autologica presents the third part in a series of articles that address common problems and issues faced by family-owned businesses, based on an interview between Al McClymont, CEO of Autologica Dealer Management Systems, and J.C. Aimetta, an expert and coach who specializes in family-owned businesses.
Al McClymont: It seems obvious that in every family-owned business there will be members that will work in the company, and members that choose not to. How can the interests of family members that work in the company and family members who do not work there, be reconciled?
J.C. Aimetta: Well, first of all, it is necessary to understand that the family members who work in the company do so to make everyone wealthy, even those members that do not work there.
Thus, a simple way of reconciling interests is to provide the family owners that do not work in the company with information. Offer them information about how the business is doing, how it is evolving.
The simplest data is the balance sheet. An annual or biannual balance, so that they know whether there was a profit or loss, is a way to keep the family members that do not work in the company informed, and help them to learn to appreciate the family business.
Mainly, when it comes to family members that are owners and who live abroad, a feeling of emotional indifference is generated because they never get information about the company’s development. Thus, little by little they lose interest, and may decide abruptly to get rid of their share. So, the first thing to do is provide information.
And the second thing is to provide money.
The owners of the family business tend to become richer in assets and poorer in cash. That is to say, they are “rich” because they have many things, but “poor” because they have no cash to spend.
Therefore, when someone reaches their 50’s or 60’s and realizes that they own 20% of a company located in some part of the world, but they have to take out a loan in order to take a cruise, they can get angry.
Al McClymont: What should the company be doing to prevent theses family members from getting upset?
J.C. Aimetta: Well, first of all, it is necessary to provide the family member who does not work in the company with some kind of return, some distribution of results, even if it means less reinvestment and less growth.
As regards information, we should believe that the family members who do not work in the company are experts. Thus, it is a great mistake to hand a balance sheet to a person who is a painter or a writer, and think they are ignorant because they do not know how to read it. Nobody is that ignorant as to be unable to learn how to read a balance sheet. And if they want to be a shareholder, an owner, they must at least understand the ABCs. In practice this is not usually explained to them, the information is just given to them in order to satisfy a formality.
Every time an owner does not understand what is happening and does not see cash from the company he owns, the risk of them suddenly leaving even grows, sometimes even amid an unhealthy legal situation.
In the next part of this interview, we’ll talk about how the family-owned business can plan for succession.
By Al McClymont