Family Businesses, regardless of age, size and business sector, are often damaged or torn apart due to lack of a well-conceived system for avoiding and resolving disputes and staying profitable. These disputes can become train wrecks and can derail even the best Family Businesses.
“Every business is a family business. To ignore this truth is to court disaster.”
Michael E. Gerber,
The Family Business Protection Protocol
To help avoid these train wrecks and keep the Family Business dream alive and well, our work with Family Business Leaders around the country includes deploying the Family Business Protection Protocol. This operates in addition to (or as part of) a well-conceived Family Business Buy-Sell Agreement.
The following are some of the features which we recommend be considered or included:
- Family Business Culture. A clear statement of your purposeful Family Business culture, mission and vision, consistent with the needs and design of your dynamic Business Model.
- Profit Strategy Team. Business leaders, now more than ever, know that if they don’t innovate and grow, their companies will die or fade quickly. This is why we have been helping companies more and more to set up a Profit Strategy Team (aka Advisory Board). The guidance for this can be specified in the Family Business Protection Protocol.
- Profit Plan System. Specify that the Company will adopt a Profit Plan System built on a proven, continuous improvement and innovation process for your Business Model.
- Business Expansion Incentives. Specify strategy for seeking State Business Incentives for every business expansion.
- State Tax Planning and Defense. Specify Company directive to aid growth through State and Local tax reduction planning for each type of purchase/sale transaction.
- Peer and Industry Groups. Decide on how the Company and its leaders can benefit by participation in Peer and Industry Groups and Masterminds.
- Leadership Development. Decide on how the Company’s existing and future leaders will continually develop.
- Emergency Succession Plan. Details on immediate succession if the CEO gets “hit by the bus.”
- Code of Business Conduct and Ethics. Specify the areas to be covered to set the expected standard for behavior, trust, respect, collegiality and legal compliance.
- Board Approval Actions. Spell out those actions which require Board of Director approval.
- Right to Engage in Competing Businesses. Specify on what basis a co-owner can engage in a competing business.
- Confidentiality Provisions. Specify the requirements to maintain proprietary information in confidence.
- Financial Requirements. State the nature of the financial statements, budgets and capex guidelines which the co-owners expect and under what circumstances personal guaranties will be expected.
- Subchapter “S” Protection. Include provisions that require the protection of “S” tax status, as applicable.
- Family Member Employment. Establish the prerequisites for hiring and promoting family members.
- Annual Dividend Payments. Establish a policy which the Company will follow for determining annual dividend payouts.
- Family Member Compensation. Establish a family compensation system, with guidance from a compensation professional.
- Non-Solicitation. Detail the limitations on owners soliciting the Company’s customers or employees for an owner’s other businesses.
- Board of Directors. Specify guidelines for Board composition.
- Retirement Guidelines. Establish a co-owner retirement policy.
- Company Formalities. Require normal corporate or LLC formalities and recordkeeping (which is also key for asset protection defenses).
- Conflict of Interest Policy. Detail the conflict of interest policy.
Your objective for deploying a Family Business Protection Protocol would be to establish best practices for keeping your Family Business successful and profitable while maintaining family harmony. This enables you and your colleagues to know what the expectations are, while being flexible so you and your team can adapt as your Family Business grows into the future.