Small Business Management Chapter 2

Family Interactions

-Family members' sense of "ownership" can be a strong, positive motivator in building the business and leading to greater cooperation -Conflicts can occur because various relatives look at the business from a different perspective

Family Limitations

-Lines of authority and responsibility in the company must be clear and separated from those within the family circle -Number of competent family members from whom to choose the managers of the company is usually limited -Some families organize their businesses into corporations and hire professional managers to run them when no family members are in a position to manage -Frees family time for other purposes, reducing friction, and having employees treated more fairly

Estate Planning Issues

-Trying to minimize taxes -Retaining control of the business -Maintaining flexibility of operations

How to Compensate Family Members

1. Compensation should be based on job performance, not family position. 2. Fringe benefits can be useful as financial rewards, but they must conform to those given to nonfamily employees 3. A title is perceived as a confirmation of a job well done and also tends to serve as a motivator

Estate planning can:

1.reduce the need for beneficiaries to withdraw funds 2.help maintain beneficiaries' interest in keeping funds in the firm 3.provide for a smooth transition

The Family and the Business continued..

Although ownership of a small firm is usually controlled by one or a few family members, many others in the larger family are often involved In family firms strong family ties can improve the chances of consensus and support, while dissension can lead to disagreement and/or disruption of activities

Role of the Family-Owned Business

Around 90 percent of all U.S. companies are family owned Family businesses can be a source of unresolved family tensions and conflicts, which can create obstacles to achieving even the most basic business goals

What to DON'T do

Don't hold grudges. Don't have one spouse work for another as an employee. Don't let business arguments get personal. Don't make major decisions without consulting your spouse. Don't start a business in the first place unless the relationship is strong

The Family and the Business

Families who own and operate family businesses need a family mission statement to provide direction for coping with the 24/7 necessities of operation As business occurs we tend to get caught up in business activities and delay attention to our families while concentrating on the financial needs.

Estate Planning Techniques

Family gifts Family partnerships Stock sales to family members Living trusts

Trends in Family Businesses

First, many young people are going into business for themselves—and tapping their parents for funds to finance their ventures Second, a large number of spouses doing business together Referred to as copreneurs

What Copreneurs Should Consider

Jot down what each hopes to accomplish and see if their goals are compatible. Find trusted employees or advisors to help settle disputes. Consider talking to a marriage counselor about how this will affect their relationship. Let each spouse take the role he or she fills best. Schedule personal time.

Start at Entry-Level or Higher-Level Positions?

Never allow a child to work in senior management until he or she has worked for someone else for at least two years. Rotate the person in varying positions within your business. Give promotions only as they are earned Devote at least half an hour each day to face-to-face teaching and training. Do not take business matters home

How to Deal with Incompetent Family Members

One solution is to convince family members, as well as nonfamily employees, that their interests are best served by a profitable firm with strong leadership Family members with little ability to contribute to the firm can be placed in jobs in which they do not disturb other employees

Living trust

Resembles a will but, in addition to providing for distributing personal assets on the maker's death, it also contains instructions for managing those assets should the person become disabled

Advantages of Selling to Family Members

The business stays in the family. It provides a source of employment for family members. The family's stature is maintained. The former owner is free to relax or travel. There is pleasure when the successor is successful. It can strengthen family bonds rather than produce additional family friction.

Preparing for Management Succession

To avoid family succession problems, entrepreneurs should start planning early for their replacements.

Family limited partnerships

allows business owners to pass assets to heirs with a minimum of income and estate tax costs—while retaining control of the assets during their lifetime

Estate planning

preparing for the orderly transfer of the owner's equity when death occurs

Buy-sell agreement

provides for the corporation to buy back a shareholder's stock when he or she leaves the company.

Disadvantages of Family Limitations

reduced family employment lower income concentration of power in small cliques difficulties in finding and keeping a good management team loss of the "personal touch"