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Why your family business needs a formal agreement
Forward Thinking Business Blog –
Like any other business, family businesses become more complex as they develop and grow. This is particularly true as more people are brought into the business, regardless of whether they are family members or other individuals recruited to meet specific business needs. Wherever people work together, conflict can arise due to differing expectations and standards of behaviour, inter-generational tensions, conflicting objectives, inequities in responsibility, performance management, remuneration, and so on.
A well thought out and effectively communicated family business agreement can help overcome these problems giving you more time to focus on your core business.
So, what is a family business agreement?
Essentially, a family business agreement is a roadmap for the successful transition of the family business to the next generation. It sets out the plan for the business and the skills required to ensure the next generation is adequately equipped for the successful succession of the business. It is based on family trust, mutual respect and the mantra “If you look after the business, the business will look after the family.”
Having a formal family business agreement provides clarity and assists with buy in from intergenerational family members which can help manage conflict, says Michael Farrell.
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Key elements of a family business agreement?
The family business agreement includes items such as:
- Funding plan for the future financial well being of the senior generation
- Timeline for exiting the business and managing the transition period
- Listing of family assets and details of the plan for how these will be transferred to the next generation
- Roles and responsibilities of the next generation focusing on building an effec-tive team to maximise the success and long term sustainability of the business
- HR policies covering recruitment, remuneration, company cars, reporting lines, bringing family members into the business and performance management.
- Employment contracts for all staff, including family members
- Criteria for a Shareholders agreement dealing with all aspects of ownership, including valuation and exiting the business
- Procedures for lasting power of attorney
- Action plan and timeline for succession.
Securing buy-in
To be truly effective, it is vital that your family business agreement is understood and supported by all your stakeholders. The ability to provide good communication, clarity about individual roles and meaningful feedback are important aspects of effective leadership and will help you to secure buy-in.
Even the most informal family businesses will benefit from having a family (business) agreement. Taking the time to develop this document can be the key to long term sur-vival and success.
For more information on FPM’s family business services…
