SMB Multi-Generational Business Management and Planning

There are countless obstacles that all growing businesses confront, but small family business owners must overcome an additional range of unique challenges. For example, there’s strategizing to scale while ultimately maintaining family control through future generations. Beyond succession planning, there’s essential self-education in effective family hiring, management practices, legal requirements, special risk evaluations, family business tax considerations, family business ethics, and special requirements when having your children working in the business.

Here are some essential points of advice for family business leaders:

Financial Planning for Family Businesses

Owning a family business gives entrepreneurs the freedom to focus on long-term goals. This approach offers organizations greater potential for long-term sustainability through internal or external adverse conditions.

• Effective family business leaders tend to be more focused on goal-setting that factors in the best interests of the next generation than only the best choices to maximize the next quarter or year. (Reference: Family Business Center data.)
• Owners of family businesses tend to apply financial strategies that serve their customers’ and employees’ priorities.
• Family business leaders tend to include social responsibility in their planning and policies.

Evaluating Risk

Any small business ownership proposition is rife with financial risks, such as changing market conditions, financial planning errors, and unpredictable economic or environmental impacts. Additionally, family businesses are exposed to myriad family-related risks.
The growth potential and future financial stability of the company depends on the leadership’s prioritization of legal and financial safeguards against many external and internal perils that threaten the business’s long-term interests.

Those safety measures must include mastery of physical, management, financial, and legal implications of family business income, expense, labor management, profit-sharing, and succession plans.

Business Planning for Multi-Generational Companies

In any small business, including family-owned portable restroom rental companies, growth and profit margins are the outcomes of management’s strategic vision and leadership effectiveness, and the team’s ability to produce. But, short- and long-range planning in a multi-generational business, as for any other business, is the critical leadership discipline that guides the enterprise to success or failure. That planning must include:

• A written family business management succession plan.
• Clear assignments of family members will oversee, run, and work in the operations.
• Detailed written family hiring policies.
• A written structure of each family member’s ownership interests.
• Compensation plan for family members employed and not employed in the business.
• Define ownership blocs and commensurate voting rights.
• Specification of the form of shares (LLC or in a trust) based on individual interests.

Taxes on Family Members Employed By a Business

There are numerous special tax benefits for family businesses. For example, you can reduce your tax liability when you hire your family members as employees:

• As a business owner, you are not required to pay unemployment tax for your spouse or your parents if they work for your company.
• You also may not be required to pay the employer-side income tax or Social Security contributions for your children who work for your business.
Legal Requirements When Family Members Work in Your Business
Your children or any other family members employed in your business must be treated the way all other workers are managed:
• Roles: Any work that children or other members of the family do for the business must serve the legitimate regular needs of a business of your type, and the work completed must be documented.
• Pay: Paychecks must be issued as part of the regularly scheduled payroll to your children or other family members working at your business.
• Records: Employment records must be kept for all family members working in the business, including hours, payments for services rendered, etc.
• Expenses: Children’s assigned work tasks must be consistent with the job description for other employees with similar roles in the company.

IMPORTANT: You are legally required to obey federal child labor laws, including paying your child a legal wage, to be eligible for applicable tax benefits.

Succession Planning in the Family Business

Family business succession planning determines the company’s future leadership, ownership share allocations, forms of profit distribution, and much more. Under best practices, directors can be installed to confirm new leadership, determine individual responsibilities, update policies, examine family roles, review employment agreements, and evaluate compensation and retirement programs.

Working to resolve conflicts over leadership succession, asset distribution, favoritism, and other common family business issues helps the business stay under family control. But, according to the Family Business Institute, only a small percentage of family businesses remain under the family’s control after several generations (only about three percent.)

However, that statistic means that there are still many family businesses across the United States that are thriving under family control over many decades. Some key success factors in these cases are the development of strong family business leadership, sound management systems, effective conflict resolution, and focus on the business’s long-term future.

In preparation for generational management transitions, family stakeholders should develop a thorough business estate plan that considers the family members’ rights and obligations regarding the business. These measures help advance the family’s financial interests, the business’s sustainability, and its workers’ opportunities into the future.

The overarching principle of family business management is to sustain the commitment to family ethics and values in operating the company through the generations. This is the core of the company’s culture and the most essential advantage of family businesses in maintaining the quality, customer satisfaction, and community image it takes to build a great family brand.

Resources

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Deloitte%20Growth%20Enterprises/us-dges-business-succession-planning-collection.pdf
https://www.thebalance.com/reduce-your-small-business-tax-burden-2951877
https://www.forbes.com/sites/brianluster/2015/12/15/five-ways-to-keep-a-family-owned-business-in-the-family-for-generations/#5f21c2ef6759

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