If you are like most business owners, your personal identity and your family’s is intertwined with your business identity.
In all likelihood, you want family members to work with you in your business, and you want one of your family members to run the business once you are no longer willing or able to do so. Also, if you are like most business owners, you have not shared your ideas with anyone and you most certainly do not have a plan to make your wishes a reality. Family members merely append themselves to your business, and soon you realize that it’s time to spell out some rules.
Such a plan is called a Family Participation Plan, and it goes well beyond who will eventually run the business. In fact, it lays out the rules as to how family members will become part of, and remain employees of, your business.
Let’s look at Andrew. He is 54 years old and has been running his auto parts business for 30 years, ever since he and his younger brother Dennis started the store back in 1971. Andrew has two sons and one daughter. The daughter, Helen, a university business school graduate, is the strongest person of the three and works in the office. She is married to Ed, who also works as a clerk in the business, but is not capable of managing it. Andrew’s son Jack works the counter while, after a brief unsuccessful career in show business, son Dave is now on the road selling.
Andrew’s brother Dennis has one son, John, and one daughter, Sue, both working in the business. Both have community college degrees in marketing and communications.
Andrew put up all the capital to start the business and owns 70% of the company through a holding company. All five members of his family are shareholders, with Andrew owning the controlling interest. Dennis, on the other hand, shares the ownership of his holding company with his wife who is not active in the business and does not want to be. Both Andrew and Dennis have simple wills in that all their holdings are transferred to their spouse at death except for the business which is left to their oldest children, namely Helen and John.
In total there are 14 additional non-family employees within the business. The business has no rules for family participation, so even though some of the non-family employees have more responsible jobs, the family members all make more money. The compensation within the families is not based on anything concrete other than personal circumstances. Dennis’ children earn the most and are always complaining. On the other hand, Andrew’s children all collect equal salaries; however, Jack and Dave are also on commission and earn much more than Helen as a result. Every time Helen does the payroll, she complains to Andrew and has threatened to quit many times.
Unfortunately, this is not an uncommon situation. To jump in now and untangle this mess might be necessary for the long-term survival of the business and the family. As he tries to undo the seemingly innocent decisions of years gone by, Andrew fears things could get ugly before they get better.
Trying to plan succession and retirement within such a diverse structure is nearly impossible. Here are a few items to consider so that you don’t find yourself in Andrew’s situation.
Charles Seguin, CA, is partner-in-charge of the PricewaterhouseCoopersLLP Automotive Retail Practice. The cross-Canada practice focuses on retailer growth and development, operations improvements, succession planning, acquisitions and divestiture, accounting, tax and finance-related issues. He can be reached via e-mail at firstname.lastname@example.org
Luanna McGowan, LLB, is partner-in-charge of the PricewaterhouseCoopersLLP Centre for Entrepreneurs and Family Business. The centre provides facilitation, strategic planning, retirement planning and wealth management services to entrepreneurs and organisations. She can be reached via e-mail at luanna.mcgowan@ca. pwcglobal.com.