Bloodlines and Bottom LinesAugust 18, 2015 – In The News
Stephanie Resnick was featured in the Leading Edge Alliance article, “Bloodlines and Bottom Lines.” Full text can be found in the August 18, 2015, issue, but a synopsis is below.
Family businesses have the capability to be both successful and profitable, that is, as long as everyone in the family is willing to work as a team and strategically plan out each business move.
Fox Rothschild Partner Stephanie Resnick emphasizes the importance of defining the structure within a family business as the first step. She explains that defining job descriptions for each member of the family establishes the boundaries regarding authority and power for each given area.
“It’s very important to have clear roles and responsibilities established and in writing,” says Resnick.
“Roles, compensation, duration of employment — all of it should be specified. It’s good to have employment agreements written out, so they can be referred to in the event of a dispute, because any time you have family members working together, there’s that chance that family tension could bleed over into the business.”
Going in to business as or with a family holds the potential to turn ugly; personal matters can sometimes interfere and undermine the goal of the business.
“I’ve seen it get pretty ugly, with family members filing lawsuits against one another,” Resnick says. “Often, it’s because one family member is busting their hump, working 12-hour days, while another shows up sporadically, goes home at 3 p.m., but still gets an equal share of the profits. When you don’t have responsibilities defined, you can’t really enforce things.”
Along with defining and outlining the specifics within the family, bringing in a fresh set of eyes to serve as an unbiased balance is often a vital part to the success of the business. When a family business has outside perspectives as a part of the upper management team, strategic decisions can be made with much more of a clear mind.
Resnick says it’s important that outside hires comprise at least part of the management team. If outside hires enter the organization too far down the ladder, they won’t have the authority — or won’t think they have the authority — to challenge the family leadership’s thinking.
“Typically, the people from outside the family will occupy some of the top-tier roles in the company, such as COO or CFO,” Resnick says. “But the important thing is finding talented people from outside the family and getting them on board in a management capacity, no matter the role. They could even serve on the board, or on an advisory committee. But any way you do it, having outsiders on board is going to help insulate everyone from internal matters between family members.”
A concern that often arises within family businesses is the use and spending of money. Is one family member using company funds for their personal endeavors? The use of company funds, along with responsibilities and management roles, must be properly explained and outlined.
“That’s where having a CFO from outside the family can become such an important factor in the success of the business” Resnick says. “You don’t want a family member to think, ‘This is mine anyway’ and just take money out of company accounts to pay for dinner. Having a nonfamily CFO and a well-defined reimbursement policy can help prevent that type of spending.”
“If you go out of town on business, the hotel, the rental car, the plane ticket, dinners or events where you’re entertaining clients — all of that is legitimate,” Resnick says. “If you have a birthday party for your brother at a ritzy golf club and write that off as an expense because you technically work together, that’s not advancing the business in any way, so that’s an inappropriate expense.”
A family business should be conducted in the same manner as any business; it is a business and businesses, just like its employees, need to make money. The wages and salaries of all employees, family members and nonfamily members should be addressed and outlined just as a job description.
“You need a policy of fair, equal employment, regardless of who it is,” Resnick says. “Hours and compensation should be enforced fairly across the board, and that should be a part of your company’s governance, in writing.”
Click here to view the full article.