When working with family, more, not less, needs to be in writing!
Perhaps you’ve heard this expression: “The shortest pencil is better than the longest memory.” That’s especially true when working in a family business. In fact, I’d add one more sentence: “If it’s not in writing, it doesn’t exist!”
I’ve found that legal documents; standard operating procedures (SOP’s); written plans for the transition of management, leadership and ownership; and documentation of important business discussions with assignment of agreed action are better than conversations, any day.
Here’s what happens - those working in a family business hint around the topics of “the future,” “what’s right,” “what’s fair,” or “we should do that.” We express an opinion or state a fact. We might receive different opinions and facts, silence, grunts or head nods. Occasionally we hear, “You’re right,” or “That’s a good idea,” or “I’ll take care of that.”
Here’s the problem - we assume there actually is agreement which will be followed by appropriate action. Bad assumption. We wake up one morning and realize a conversation is not a contract!
You’ve seen the results. The next generation leaves after dashed hopes of promotion, recognition or transition; the senior generation wonders, “Why did I bother?”; family members stop talking to each other; or a business is split or sold. It’s time we work toward a better alternative.
I’ve had the privilege to consult with many farm and ranch families. I listen to their stories and help define their goals and solutions for their needs. Then I ask for their current documentation. Wow, the room quickly becomes silent.
The majority of times, family businesses have little clarified and in writing, yet each individual has unmet expectations, dashed hopes, fears, worries, and frustrations. A better alternative is legal documentation, voted and approved actions, and appropriate paperwork. All are needed to assure the outcome meets the expectation.
Here’s a sample listing of what good businesses have clarified and in writing:
- Titles, deeds, documents of asset ownership
- Business structure documents – Articles of Incorporation, By-laws, Partnership Agreements, LLC Operating Agreements, etc.
- Exit strategy or Buy-Sell agreement
- Leases, contracts
- Signature authority
- Minutes of meetings
- Financials which are timely, accurate and transparent with shared reports to owners, leaders and managers
- How decisions are made
- Mission statement, business plan, goals, standards
- Code of Conduct
- Conflict resolution statement
- Job descriptions
- Employment contracts
- Compensation package of salary and all fringe benefits
- How much money can be spent before it must be a group decision
- Who hires, who fires
- How people will be evaluated and by whom
- Compliance and regulatory documents
- Ownership and leadership succession plan
- Individual estate plan, will, living will, and powers of attorney for health care and finances
These documents and clarifications give you a solid foundation upon which to build a strong business. They explain “the rules of the game” to all involved. After years of consulting with farm and ranch families, I think one of the most important lessons I’ve learned is when working with family, more, not less, needs to be in writing.
Thanks for taking time to read this. Here is a little about the writer and the speaker for our event!
Jolene Brown is a farmer, professional speaker, author and champion for the family owned business. She's from West Branch, Iowa, USA, and travels worldwide sharing leading-edge best practices that have the power to increase productivity, profitability and peace of mind. Her passion combined with her fun-filled spirit and valuable information brings humor, hope and helpful ideas to the people of agriculture. Jolene’s books, “Holy Crap! I Married a Farmer!” Joy-filled Lessons Connecting Our Sisters in Agriculture and Sometimes You Need More Than a 2x4! How-to-tips to successfully grow a family business are available online at www.JoleneBrown.com. For more information and to check out her speaking availability, contact her at Jolene@JoleneBrown.com.
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This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.