Hiring Relatives For Your Business – Should You?

Here are some of the pros and cons about adding your relatives to the workforce in your new business:

Members of your family take personal conversations, and business conversations as the same thing – all personally. It is very difficult for family members to separate the two. Emotionality comes into play quite a bit when working with family members that you ask, tell, or suggest to do something.

Workers you hire from your family expect that the work environment will be more relaxed than working for strangers. Some family members will expect special breaks, or a lot of leeway to complete tasks and projects. Can you afford to treat them differently than regular employees you didn’t know before you hired them?

Time off for vacation, sick time, vacations, flex-time, maternity leave, etc – is treated by family as very important and expected. You are part of that family and so you must know how important it is – right? It is best to make this issue very clear from the outset what the policy is – and how many days family members will receive off.

Salary. Regardless of their actual position in the company, family members may believe they should get more pay than others that are doing more than they are – or, in more critical positions. If you succumb to the temptation of doing this for family members, other employees will feel resentment because of it. Makes no difference to them that the person getting paid more is part of your family. There is a general sense of fairness in the workplace that doesn’t get overwritten when family works for family and you’re better off to pay what the person is worth, not more.

What if you are getting pressure from within the family to hire another member of the family? What should you do in that case?

As a business begins it is in a very fragile period where, if things start going wrong, the entire business could go bottoms up. Hiring family employees can be exhausting… no matter how much patience you think you might have. You may start to blame your family workers for not pulling their weight…freeloading! It could turn into a very ugly situation.

I would recommend you not initially hire anyone from your family until the business is firm on its feet and even if something goes wrong, it won’t be catastrophic.

Perhaps the best policy is not to have family members join your business at all if you can help it. It is one that I personally adhere to, and frequently share with other owners of small businesses that are considering what to do.

Instead, have a clear policy of choosing employees only based on what they can add to your business. Business startup is a crucial time where success or failure is often just a few days away. Why not eliminate this one issue by not hiring family? I think it would be a very wise choice in most cases.

These are a few of the issues that invariably raise their ugly head when family members are hired into your new business. Can you handle the extra emotional issues? The resentment from other employees? The sometimes bad attitudes?

These are things you need to seriously consider right now before you hire them because after you hire them, can you fire them?

Family Business, Non-Family Business, Urban Myths.

After 20 years of working with Senior Executives across the world it’s interesting to see the mistakes when appointing Senior Executives. There can be many reasons why, but one reason is not understanding the differences of working in a Family Business and a Non-Family Business. I’ve recently met several Senior Executives who are unhappy with their employment because of this lack of knowledge and understanding and I’m meeting Business owners who didn’t realise there was a difference. These Business Owners feel that money and title is enough and stick to the Mantra of “Surely experienced ‘C’ level Executives can work in any company?”

Due to the change of economy, I have become more involved with assisting Family Businesses rather than just the corporates in finding ‘C’ level people. To do this successfully I believe that everyone in the process of hiring Senior Executives must understand the differences that separate the two entities. Having worked for an English and Indian Family Business in a past life this has helped me at first hand to see the ups and downs of these Businesses; this with a theoretical base has helped with running my own companies or advising others with theirs.

One recent company I have been involved with was run and founded by a successful New Zealand Entrepreneur. He does not have anybody in his immediate family to hand the reins over to. He has tried (outside the family) executives to fill his ‘C’ level roles and has had three people in three years! What is the problem? Was this a real Family Business? Was the Problem his, or the Executives?

We discussed the reasons for the failures but in terms of assisting the owner I got him to firstly look at where his people came from. All three had been ‘C’ level people in corporates and had done an excellent job in their corporate environment. They all returned to corporate life and continued to do well in their new roles. Why did they fail then in this successful company?

What I needed the owner to do was to identify a “Family Business”. I don’t normally use dictionary definitions but feel that in this instance Wikipedia gives a satisfactory explanation of a Family Business;

“A commercial organization in which decision-making is influenced by multiple generations of a family-related by blood or marriage-who are closely identified with the firm through leadership or ownership. Owner-manager entrepreneurial firms are not considered to be family businesses because they lack the multigenerational dimension and family influence that create the unique dynamics and relationships of family businesses” Wikipedia 2014.

We looked at his company and although he didn’t have anyone in the immediate family to take over the reins he had people who owned the company in minor leadership roles. We both agreed he did in fact have a Family Business.

He thought that buying in top salaried ‘C’ level Executives from corporates would enhance growth and sustain his business. He had not seen any differences between Family and Non-Family Business.

Urban Myths for Family Businesses;

All are unstable Small to Midsize businesses’.
As an Executive I don’t want to baby sit the junior family members so they can take over my job.
A non-family member will never run the company.
Mother and Father Companies, the only people that matter in the company are family members.
Emotional hard to work places due to family disagreements/arguments.
Incompetent family members in positions of authority.
Are these statements true or are they just Urban Myths?

Family businesses are one of the fastest growing sectors of the world economy and now merit serious consideration by Senior Executives looking to advance their careers. This is an amazing turnaround from 25 years ago when nobody wanted to work for a family-owned business. There now seem to be many positives;

Patricia Epperlein from InterSearch reports that;

In the USA, 90% of businesses are family-owned. They contribute towards 40% of that nation’s GNP and pay approximately half of its total wages.

59% of France’s Top-500 industrial companies are family-owned.

It is estimated that 70% to 85% of all businesses worldwide are family-owned.

Tom O’Neil NZ Herald. Jan 2014 states;

Small to medium businesses are the lifeblood of New Zealand industry. Various sources cite family businesses as representing 75 per cent of Kiwi firms, providing up to 80 per cent of employment and 65 per cent of national GDP.

It’s interesting to note that when companies around the world state that they are a “Family Business” they are trying to reinforce positive family values of, Integrity, honesty, trust and loyalty.

Not all Family Businesses’ are SMEs. Companies like;

Porsche
WalMart
Tata Group.
In New Zealand the Talley Family (Agribusiness) and the Pandey family (Hotels).
Simon Peacocke of BDO Auckland, an accredited Family Business Advisor works with numerous NZ Family Businesses and feels that they do well because of the following reasons;

Family businesses think very long-term and are very resilient, much more so than non-family businesses.

Second and third generation family business members start their apprenticeship at a very young age. At 5 years old they are hearing their parents talking about the business so they have an incredible depth of knowledge to draw on.

Their relationships with staff and communities also tend to be different – closer, more connected, more loyal.

Staff tend to become part of the family business and to stay on as long-term committed employees.

While corporates like to be seen supporting their communities, family businesses generally don’t promote they are doing this – they just do it.

They don’t throw lots of money at things trying to get rich quick.

They also have a powerful focus on building relationships with staff, customers and suppliers.

So is it worth working for a family company? Is it better to work for a Non-Family Business? Is there any difference when the economy is good or is in a slump?

Nicolas Kachaner 2012 in the Harvard Business Review states,

“Results show that during good economic times, family-run companies don’t earn as much money as companies with a more dispersed ownership structure. But when the economy slumps, family firms far outshine their peers. And when we looked across business cycles from 1997 to 2009, we found that the average long-term financial performance was higher for family businesses than for non-family businesses in every country we examined”.

Senior Executives looking for longevity in the work place should look at the Family Business as this would take them through economies varying peaks and troughs. They will need to be aware that this will always be done in a cost effective way.

Business Consultants believe that they can tell easily if the company is Family or Non-Family Business. You just walk into the Head Office. A Non-family office has a very substantial corporate office with a “Wow Factor”. The Family business being more Frugal has very few “Bells and Whistles”. This Frugality is about the Family Business CEO looking to invest in the long term 20 year plan with the business passing down the generations. The Non-Family CEO is looking to make an instant mark and will try and outperform the person they have taken over from. There are many studies that show that Family Businesses did better in the recent Global recession for the above reason. The Family Business is frugal in the good times and the bad allowing them to weather the storms of economic crisis.

This is one of the factors that had been wrong in my client with three ‘C’ Level people in three years. His ‘C’ level people came in with a quick turnaround plan which they hoped would give a quick fix and outspending the last person in the hope that they would do something instantly. No twenty year plan for them as they had never been afforded this way of working in the past.

Do Family Businesses perform differently in other countries?

Justin Craig, PhD states,

“Interestingly, in many aspects family businesses as a sector do not vary much from country to country. There are obvious cultural differences but a business with family involvement is challenging in every country. It is also more rewarding than the ‘corporates’, let’s not forget that. Of course, there are older businesses in Europe, for example, than in Australia and New Zealand and the United States, and the mind-sets of companies in Europe will differ than in the later developed countries. But day to day the differences are not noticeable. Older businesses have more at stake and lots more to lose but they also have advantages. Family leaders still have to manage three independent and interdependent systems being the family, the business and the ownership group”.

Appointing the right Senior Executives is crucial to any company and is a costly acquisition. There are many reasons why hiring at this level goes wrong but getting it right can make a huge difference to your company.

To answer one of my questions, can a ‘C’ Level person work in any type of Business, Family or Non-Family?

Yes, but only if they are armed with the knowledge of the differences of the two. What they must also be sure of is the type of business that they are going to work in as sometimes this can be a cloudy issue, making it difficult for them to decide which one it is. Look at those mighty corporate companies of Porsche, Tata and Walmart to name a few.

Finding the right ‘C’ Level Executive is a lengthy process and shouldn’t be rushed, if you need to rush you are better to go down the Executive Leasing Route in the short term which will allow you to take a breath and get the right permanent person in place. Work with your inside team or your outside partners to establish a good process, so the firm can articulate the process to the Senior Executives. Everyone appreciates the fact that there is a well thought-out plan in place.

For me, I decided a long time ago not to build a Family Business. I wanted to give my children the best in life, but wanted them to make their own way in life too. My children might disagree but as one is studying to be a Barrister and one is settled in a corporate I will wait and see if I need to step in? I have however, always agreed with Billionaire Investor Warren Buffett who said, “He would give his kids just enough so that they could do anything, but not so much as they did nothing”.

Term Life Insurance for Business – Taking Advantage of Its Benefits

Putting up a new business is a tough job to fulfill – you will surely face a lot of challenges as a beginner. There is no assurance on how far your business can go most especially if you are in the very competitive market. This is why, among other important things, you must not forget to work to secure term life insurance policy for your business.

There are a number of compelling reasons why you must buy an insurance policy that is ideal for your business model. Term life insurance is considered a better option for business protection. It can be used for the following:

  • Collateral for loans – this is useful most especially if you do not have an established credit and assets yet. An insurance policy can help you secure collateral for a loan that can help cultivate your business with the needed finances during its crucial time. You can just pay it off on whatever schedule you have agreed to.
  • Key person insurance – who is this key person? This can be yourself, your business partner or any member who plays an important role for your business. You can protect your business by taking out a term life insurance policy on the key man and assume the role of beneficiary. For instance, if your business partner is the key person and he dies suddenly, as a beneficiary, you can make use of the proceeds to keep the business afloat or to decide to liquidate, have a graceful exit, and move on. Key person insurance can help prevent possible business chaos following the passing of a key member.
  • Buy-sell agreement – supposing one business member (co-owner) suddenly dies, what happens to that ownership then? Typically, his share will be passed to his family member who might or might not be interested in helping the business grow. With buy-sell agreement, potential conflict can be avoided. Other members can buy that share with a certain amount and this can be obtained by taking out a life insurance policy that stands ready to provide the needed funds to facilitate the buyout of that share.
  • Leveraging your accounts receivable – What if you don’t have the liquid assets to buy a policy because you are all tied up in your business, real estate and so forth – how can you buy an insurance policy? Term life insurance policy can be obtained by leveraging your company’s accounts receivable – insurance companies consider it as a qualifying asset for loan.