SETTING FIRM RULES
WORKING WITH the people you love should be a recipe for success. Your goals are aligned, you have an understanding of each other’s work-life balance and who better to spend time with than the ones you care for most?
Of course, the real world is often different. For many, the idea of working with one’s spouse or other close family member creates heightened tensions, family arguments and business breakdown or even divorce.
Despite its challenges, more than half of the UK’s private sector work in family businesses. Are so many people blind to the realities of working with relatives, or have they found the key to managing these risks?
Many family businesses, unfortunately, do not survive through multiple generations. The first generation of the business survives, as there are clear owners, usually Mum and Dad, who have built up a successful trade and created wealth to match. They allocate some wealth to the children, but they are unlikely to give up control of the business for many years, often turning up to the office well past retirement age.
The second generation are siblings, who start to take different paths, making their own choices of career and life partners. Some of them would be in the business, but it is unlikely that they will all be actively involved.
With some management and planning, the business will survive to the third generation. At that point, the cousins usually fall out with each other, either ending up in court, splitting up the business or watching the whole enterprise as it collapses around them.
Working with family businesses gives specialist accountants like me the opportunity to highlight risk areas and then to manage those risks so that the family can benefit from greater business growth, family unity and above-average job satisfaction. You can never prevent all of the issues arising but we can give a more structured and logical approach to this complex area.
To highlight just one area, there is the question of whom to employ. Imagine a position becomes available in the company. Will you recruit family members in preference to non-family members who might be more qualified? Should you make room for all family members, even when no jobs are available? How should family members be paid? And how do you incentivise a non-family member so they feel there is potential for progression, when the purse strings are held by the family?
The answers to these questions will also depend on who is being asked. Mum and Dad might want to keep things tightly in the family, despite the negative impact that it might have on the business. “If the family stays together, then the business will survive,” you might hear them say.
Tom, their oldest son, who works in the business, might be struggling with an overload of work as his parents age. Perhaps he is looking for new blood outside the family to relieve some of the burden. He sees this as the right model to build the business. He is also concerned that if they do not recruit an external candidate, Dad will bring in Jack, the new son-in-law who Tom sees as a loose cannon and a bit of a freeloader. Katy, who is married to Jack, thinks that although she has no aspirations to join the family business, her new husband should have the right to take her place. She is angry with her brother Tom, who she knows is blocking Jack’s entry into the business. To make things worse, Jack is taking it out on Katy, when it is not her fault, and they have been arguing far too much.
If this is sounding uncomfortably familiar, at least know that you are not alone. However, you will probably benefit from an independent professional to help you work through these issues. Speak to your accountant or call in a specialist — there is no reason for family businesses to fail. On the contrary, they have many positive attributes that cannot be replicated elsewhere. But you do need sensible planning and the determination to make it work.
Geoffrey Hollander is a partner at Cameron Baum Chartered Accountants, focusing in general practice on multigenerational family businesses. He can be contacted on 020 7724 8824