7 ways to successfully navigate the ‘family’ in your family business
Lance Hennesay sat down across from his father at their favorite diner (pictured above) for the most nerve-wracking breakfast of his life.
As the server poured coffee, Hennesay announced that he wanted to leave their family business, a small propane company in Fowler, California.
“Deep in my heart,” Hennesay told his dad, “I still want to go to law school and be a lawyer. I want to have my own dreams.”
Hennesay, now an attorney who works with financial professionals at Principal®, remains tethered to that moment back in 1995. Today, two-thirds of his cases are family businesses.
“I know what it’s like to have the family income staked to a small business,” he says. “Every decision can feel perilous.”
Here’s what he’s learned from decades of working with everything from collision repair shops to agribusiness firms:
1. Avoid dangerous assumptions.
Managers in a family business may not communicate effectively because they’re related. If you’ve known somebody since he was in diapers, you might assume you can predict his viewpoint. But that only breeds misunderstanding. If anything, make communication even more frank, direct, and constant.
2. Consider a cross-purchase agreement.
Hennesay didn’t want his wife or mother burdened with the stress of the business if he or his dad were sidelined. So father and son worked with their local attorney to draft a cross-purchase agreement and covered each other with life insurance. The agreement enabled the survivor to buy out his partner’s shares, securing the business while providing immediate financial stability to the grieving spouse.
3. Draw a bright line between family and business.
Do you find yourself rehashing work decisions over Thanksgiving turkey? Some impromptu business conversations at home can be constructive, Hennesay says, if they don’t spiral into a bitter dispute. Establish your family’s boundaries. Then stick to them.
4. Plan carefully for succession.
The most fragile moment in the life of a family business tends to be its transition to the second generation. More than half the family businesses in the latest small-business survey by Principal still are in their first generation of ownership, so it’s not too late to plan early and well.1
As in Hennesay’s case, the child may not want to inherit the business. Or there may be several siblings or relatives who do.
Decide early whether you want to transfer the business to family, a key employee, or someone outside the company.
A note of caution: The founding generation can be reluctant to turn over the reins of a reliable cash cow. What can make the passing of the torch a little easier: a secure retirement plan. In his role at Principal, Hennesay helps financial professionals and their clients (many of them family-owned) map out retirement projections (assets, Social Security, cash flow).
Lance Hennesay's uncle, Glenn, worked 20 years for the family business as a propane-truck driver.
5. Ease family members into the business.
Hennesay was 4 years old in 1970 when his father bought the propane company. He earned his first dollars sweeping the shop, washing trucks, and changing engine oil. He was a college junior when he became a partner and general manager. By then he’d already touched nearly every corner of the operation.
Beyond developing basic business skills, it can be just as emotionally important for the new generation to work their way up to feel that they’ve earned—not merely inherited—a leadership role. How family owners are introduced into the company also typically affects their perception among the staff.
6. Retain key employees outside the family.
Blood is thicker than water, as the axiom goes, but employees outside the family can contribute new perspectives. Provide a competitive set of benefits to help keep them in place—perhaps even part ownership in the business.
7. Put the business first.
Prioritizing the company is a way to honor the family interest and its stability. “Family-first could gobble up a business real quick,” Hennesay says.
Back at that fateful breakfast with his dad, Hennesay says he did what was best for the business by asking to leave, rather than making a misguided attempt to protect his father’s feelings.
It worked. By the end of the meal, his father had accepted the news and began to strategize finding an outside buyer.
The Hennesays sold 2 years later—funding dad’s retirement and his son’s law school.
Meanwhile, they still share a weekly breakfast at a small-town diner.
But they don’t always talk business. They know their boundaries.
- Talk to a financial professional to help you with succession planning and other strategies for your family business.
- Explore business owner solutions with Principal, including mapping your retirement income goal and assistance in determining the true value of your business.
1 The Principal Financial Group® Business Owner Survey was commissioned by Principal conducted by The Harris Poll in January 2019 and included 1,020 online interviews.
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JD is an educational degree and the holder does not provide legal services on behalf of the companies of the Principal Financial Group.
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