Usually, when we think of business partners, we think of people who work together because their skills and personalities complements each other so value is enhanced. For example, one partner is good with people, and another partner is more mechanically inclined. Or, one partner enjoys finances and marketing, and another partner loves being on the combine or planter.
But, agricultural families who want to keep land in the family often show little regard for whether siblings of the next generation have complementary skills or whether they are temperamentally fit to work together. People come to be business partners because of their family ties, their parent’s wishes or an estate-planning strategy, not because the chose to go into business together. The assumption is that since we are family, we will automatically work out all the business issues together.
Yet, when siblings work together, they quickly realize being related does not translate into a good business partnership. Expectations about communication and decision-making change. Profitability, distributions, and debt become topics of conversation.
“Who’s in charge” does not revolve around who is the oldest but, instead becomes a financial and legal determination, and potentially a liability. It’s no wonder that family relationships begin to fray under the pressure of business and financial decisions.
How can you avoid the problems you’ve seen neighbors and friends go through after inheriting assets together?
DEVELOP A VISION. When people who were not in business together suddenly find themselves with common ownership, they often bring different ideas of the future. Taking time to fully explore each partner’s goals, ideas and concerns offers a chance to go beyond financial ownership. Each owner expressing his or her hopes for the future allows you to tailor your management of the asset. If done well, a common vision can provide enthusiasm and guidance for a generation or more.
CHANGE COMMUNICATION PATTERNS. Families often come together for special occasions. Holidays, vacations, weddings, and funerals are where people reconnect and rekindle their sense of family. But, when shared property or financial assets becomes a reason for gathering, the traditional family roles, communication patterns, and decisions change. Family events become tense when the discussion turns to managing money.
DEVELOP EXIT PLANS. At some point, someone will want out of the business partnership. Sharing DNA does not always make for good partnerships, and getting out of business together may help you become a better family. At whatever point an exit occurs, how do you think it will go? Will it be a bitter, expensive legal battle or a delicate negotiation? What if it doesn’t have to be either?
Recognize the process of unwinding shared ownership could be problematic. Develop a process for exiting ahead of the need. Formulate financial value for each ownership interest. Outline the time frame and interest rate at which the buyout occurs. And, define the types of situations that might trigger a buyout- for example, death or divorce. In short, figure out how to get out or business together while you are still comfortable in business together.
As business ownership transitions to siblings and cousins, it is more difficult to stay in business together. Yet, many families do hold assets over several generations. A shared vision, good communication and the freedom to choose to be business partners helps set the stage for success in your family partnership.
Originally Published in The Progressive Farmer.