Financing + 1 more
Date: November 30, 2020

5 Financial Planning Tips that Can Help Reduce Conflict in a Family-Run Business

Establishing and running a family business is a dream for many people. But while some very well-known companies began as family businesses (think Disney and Walmart), success isn’t assured. An estimated 70 percent of family businesses don’t make it to Year 2.

Why is success so elusive?

At Paradigm Financial Advisors, we work with many business owners, and in our experience, a large factor in the demise of family businesses is family conflict.

Family conflict can cause multiple issues, ranging from differences in vision to stresses about the division of financial assets. It’s important to eliminate family conflict from the start – or at least reduce it to a minimum.

Not even the best wealth advisors can prevent some family conflicts from happening, but what we can do is share 5 essentials that can help you beat the odds.

1. Defined Roles, Duties, Control and Expectations for Everyone Involved

Perhaps the greatest risk of potential conflict can occur when business roles and duties aren’t fully clear. It’s helpful to have a clear chain of command that is determined by objective criteria and not family relationships. Once the chain of command is established, it should be respected by employees and family members alike. If a family member doesn’t understand his or her role within the business, it can lead to miscommunication and hinder the growth of the company.

Define job duties and expectations from the very beginning. You will want to make sure:

  • Every employee knows what’s expected of them.
  • All employees understand how their job fits within the company’s overall strategic plan.
  • You have a way to measure employees’ performance should a question arise.
  • Every employee is aware of what his or her position entails.

Paradigm Financial Advisors specializes in helping business owners with their financial and retirement plans. Contact us to see how we can help.


2. Firm Boundaries

It’s important for family-run businesses to draw a firm line between the company and the family. The goals of each are different, and therefore, company issues and family issues should be kept separate.

Many family-run businesses find it helpful to create objectives for the business and objectives for the family. Similarly, many businesses have found it useful to create separate governing bodies for the family and the business, especially as both grow. Companies, once they reach a certain size, can thrive when they have an official corporate structure.

A transparent structure can also help prevent the creation of certain family members getting together on their own to discuss the business – a process that can create factions.

3. A Conflict Resolution Process

Even the closest of families can have conflicts in family-run businesses. It’s prudent to have a conflict resolution process in place before any conflicts arise.

In establishing conflict resolution methods, remember that conflicts may arise from many sources. Siblings may end up competing to run or take over the business, for example. Or one branch of the family may feel that they deserve a greater share of a year’s financial rewards if they feel they contributed more.

Having a third-party mediator can help provide a resolution without a family bias.

4. An Exit Strategy

So many business owners fail to plan their own retirements. While they may have plans for their employees and a financial plan for the company, it’s common to put their own future on the backburner. This can be very dangerous.

In family-run businesses, the plan may be to leave the company to a child, a sibling or even a grandchild, but what if your loved ones don’t share that same dream?

Another common assumption of business owners is that they’ll sell their business when they’re ready to retire, but that isn’t a given either. Not only do you have to find the right buyer, but outside factors, such as the market or the environment, can make this difficult. Not even the best wealth advisors could have predicted what happened in 2020?

It’s crucial that company owners establish an exit strategy, and a financial plan that backs it up. It’s also wise to share that plan with your family, and to have it in writing. If something was to happen and you passed unexpectedly, a verbal commitment isn’t enough to leave a company to a particular individual family member.

When just starting a business, it’s understandable to focus your attention on getting it up and running and on a comfortable path to success. But an exit strategy should also be a priority. Decide on a plan well in advance of putting it into place.

You don’t want the sale of a business or retirement plan to come as a surprise.

5. A Fiduciary Financial Advisor Who Can Offer Unbiased, Educated, Outside Advice

Business owners often wear many hats, but should financial advisor really be one of them?

Be honest with yourself when establishing a financial plan. You wouldn’t hire someone to run your company if they had no idea or experience in your company’s mission or plan, would you? The same should be true when it comes to your finances. Seemingly small mistakes can have major effects down the road.

Working with a financial advisor can be a huge benefit – and a weight off your shoulders. Not only can you rest assured your financial plan is being taken care of, but having someone dedicated to this task can free up more time for you to focus on the business’ current needs. A financial advisor can offer an unbiased, outside approach. Financial advisors from the outside can often see matters much more clearly than those on the inside.

When choosing a financial advisor to work with, make sure he or she will work as a fiduciary at all times. The best wealth advisors follow a fiduciary code of ethics, meaning they have a legal responsibility to put your best interests first. Working with a full-service firm can offer additional perks, such as tax planning services and estate planning. For more on what this looks like, click here.

Regardless of how long your company has been in business, if you’re ready to seek advice from a fiduciary financial advisor, contact the team at Paradigm Financial Advisors. Your future – and the financial future of your loved ones – is too important to put off.

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Jim Reding

Jim is CEO and Managing Member of Paradigm Financial Advisors LLC.