When working with family, more, not less, needs to be in writing!
August 2, 2019
Perhaps you’ve heard this expression: “The shortest pencil is better than the longest memory.” That is especially true when working in a family business. In fact, I’d add one more sentence: “If it’s not in writing, it doesn’t exist!”
I’ve found legal documents; standard operating procedures (SOP); written plans for the transition of management, leadership and ownership; and documentation of important business discussions and decisions with assignment of accountability are always better than conversations.
Here’s what happens - those working in a family business hint around the topics of “the future,” “what’s right,” “what’s fair,” or “we should do that.” We express an opinion or state a fact. We might receive different opinions and information, silence, grunts, or head nods. Occasionally we hear, “You’re right,” or “That’s a good idea,” or “I’ll take care of that.”
Here’s the problem
We assume there actually is agreement which will be followed by appropriate action. Bad assumption. We wake up one morning and realize a conversation is not a contract! And worst case scenario, there’s fighting on the way to the funeral home!
You’ve seen the results. The next generation leaves after dashed hopes of promotion, recognition or transition; the senior generation wonders, “Why did I bother?”; family members stop talking to each other; or a business is split or sold. It’s time we work toward a better alternative.
I’ve had the privilege to consult with many farm and ranch families. I listen to their stories and help define their goals and solutions for their needs. Then I ask for their current documentation. Wow, the room quickly becomes silent!
The majority of times, family businesses have little clarified and in writing, yet each individual has unmet expectations, dashed hopes, fears, worries, and frustrations. A better alternative is legal documentation, voted and approved actions, and appropriate paperwork. All are needed to assure the outcome meets the expectation.
You do not have to do these all at once
But you do need to assign someone in the business to oversee the progression of completion. I’ve found that once you get started, you feel empowered and excited to continue the work so the legacy of a family and business might positively continue. Here’s a sample listing of what good businesses have clarified and in writing:
- Titles, deeds, documents of asset ownership
- Business structure documents – Articles of Incorporation, By-laws, Partnership Agreements, LLC Organizational and Operating Agreements, etc.
- Exit Strategy or Buy-Sell Agreement
- Leases, contracts, exchange agreements (labor for use of equipment, etc.)
- Signature authority
- Minutes of meetings
- Financials which are timely, accurate and transparent with shared reports to owners, leaders and managers
- How decisions are made
- Mission statement, business plan, goals, standards
- Code of Conduct
- Conflict resolution statement
- Job descriptions
- Employment contracts
- Compensation package of salary and all fringe benefits
- How much money can be spent before it must be a group decision
- Who hires, who fires
- How people will be evaluated and by whom
- Compliance and regulatory documents
- Ownership and leadership succession plan
- Individual estate plan, will, living will, and powers of attorney for health care and finances
These documents and clarifications give you a solid foundation upon which to build a strong business. They explain “the rules of the game” to all involved. After 30+ years of consulting with farm and ranch families, I think one of the most important lessons I’ve learned is when working with family, more, not less, needs to be in writing.
Jolene Brown, CSP, CPAE
Jolene Brown is a farmer, professional speaker, author and champion for the family owned business. She's from West Branch, Iowa, USA, and travels worldwide sharing leading-edge best practices that have the power to increase productivity, profitability and peace of mind. Her passion combined with her fun-filled spirit and valuable information brings humor, hope and helpful ideas to the people of agriculture. For more information and to check out her speaking availability, contact her at Jolene@JoleneBrown.com, www.JoleneBrown.com
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