Five New Year’s Resolutions For Family Business

January is over and we have already stopped going to the gym, started eating ice cream and gave up on organizing our sock drawers.  Now is a perfect time to set some more realistic business resolutions for the upcoming year.  Most family businesses set sales or profitability goals but sometimes overlook the more mundane items that come back to bite them.  We propose five simple, specific and achievable goals for 2015:

Plan Your Exit (Or Your Escape) – Many of our family business clients have never seriously considered what will happen to the business if key family members involved in the business were unable to continue because of retirement, death or disability.  Many more of our family business clients have never seriously considered what would happen to the business if family members begin feuding.  Perhaps it is not surprising that some of the nastiest shareholder disputes arise between family members. 

Failure to plan for these contingencies can result in significant and avoidable taxes when transferring ownership of a business to the next generation.  It can deprive a disabled family member or their heirs from being able to capture any value of a business they helped develop.  It can destroy the value of a business with fighting between family members who cannot stand to work together and have no fiscally viable exit.

Keep An Eye On The Money – If you are a passive owner (i.e. not engaged in the operations) of a family business, you have a statutory right to look at the book and records of the company.  You should do that once and a while.  Books and records (or the lack of them) can provide a wealth of information about how the business is being run and whether you are getting the income that is owed to you.  It also helps to keep operating family members honest.

Clean Up That Corporate Binder – Our family business clients tend to take two approaches to corporate record keeping – the overstuffed corporate binder where some, but not all, of the three hole punched paper holes have torn through such that five pages hinge out when you hold it up or the “what are you talking about” corporate binder that never existed in the first place.

If you are a corporation, you need to make at least one entry into your corporate record book each year.  Major business events should also trigger minute entries in your books, for example, the sale or purchase of significant assets.  If you are an LLC, the annual administrative record keeping requirements are more relaxed but major business events should be reflected in the corporate minutes. 

Fresh Faces, Fresh Ideas, Reduced Liability – Consider inviting non-family members to become involved in your family’s board of directors or advisory board.  As a matter of good corporate governance, non-family members tend to bring less baggage and can offer a fresh perspective than family members.  The existence of “disinterested” board members (i.e. ones who have no personal interest in the particular matter before the board) allows a family business to proceed with less risk of shareholder litigation from family member owners disenchanted with a particular action of the board
 
Sharpen Your “Bread and Butter” Contracts – Almost every business uses and reuses “bread and butter” form agreements to buy things, sell things, license things, employ people or mitigate risk.  When was the last time a C-level person or the company’s general counsel reviewed them?  Have any of the form agreements been tested with litigation and, if so, are there any modifications that could have prevented the litigation in the first instance.