In my last blog, Lessons From ‘Tommy Boy’: When Your Continuity & Succession Plan Involves Family, I outlined tips for successfully bringing a family member into your financial advisor practice, from advisors who have been there, done that.
In each case, the advisor had a well thought-out and documented plan for taking that route—a good idea if you want your business to last past the next generation. According to the Kennesaw State University Coles College of Business, about 80% of the world’s businesses are family owned. More than 30% make it to a second generation, but only 13% survive to the third generation.
Here are some key documents or agreements you should put together before committing to bring a family member into your business, to help ensure its survival for generations to come.
Document 1: A Family Business Philosophy and Code of Conduct
What does it mean to be a family member employed by your business? Family members coming into the business need to understand your philosophy and values, which can be documented in a Family Code of Conduct. For example, if times get rough, will the business reduce nonfamily staff before family? Will family employees be expected to take pay cuts? Starting with how the business will operate in the worst of times will make it easier to document how family members will behave in the best of times.
Document 2: A Family Employee Policy
While “bringing family into the business” may make you think of your own children and grandchildren, what happens when your sister or brother asks you to make a place for their spouse? Or their children? A Family Employee Policy clearly outlines the requirements and expectations for family members who join the business, which may include a certain number of years working for another company in the same industry. The policy also may set forth that no additional jobs will be created without a thorough workforce analysis that supports the need for the new position.
Document 3: A Job Description
You shouldn’t hire anyone without a job description, and that goes double for bringing on family members. Job descriptions should include a title that describes responsibilities; a position overview that explains what this job sets out to do; specific job requirements, including education, experience, licenses, skills and abilities required for the job; tasks and duties; physical job requirements such as standing, lifting, walking; and a disclaimer statement.
Document 4: Compensation Agreement