Expert: Twelve Commandments for Family Businesses

Many decades ago, renowned family business consultant and author Leon A. Danco shared his “Twelve Commandments for the Business Owner” in his book, “Beyond Survival.”  These rules for family businesses have survived the test of time and are just as pertinent today as they were all those years ago.  Let’s take a look at these commandments.

  1. Thou shalt share thy dream with thy family. Many founders of family businesses dream of owning a business that strengthens family ties, hoping to pass it from generation to generation. Most family-owned businesses were created to allow for more quality family time and to provide a legacy for the family. Often the pressure of continually balancing the needs of the business and those of the family can be overwhelming. Open and trusting conversations about the needs of the business and the expectations for the family are essential.
  2. Thou shalt inform thy managers and employees, “This company will continue forever.” Share a positive vision.  Managers and employees of family businesses are often nervous about what will happen to the company and their careers if the founder passes away. Set decision-making mechanisms that are clear and effective.
  3. Thou shalt develop a workable organization and make it visible on a chart. Creating a structure assists in assuring sustainability and provides a signal that all team members are valued contributors to your company’s success.
  4. Thou shalt continue to improve thy management knowledge, that of thy managers and that of thy family. Invest in yourself and in your team. Join industry and business organizations.  Attend meetings and conferences and encourage your folks to take leadership roles in these.  Coupled with formal education, interaction with others in the business community creates networking and growth opportunities. You never know when or where your next best business ideas will come from.
  5. Thou shalt institute an orthodox accounting system and make available the data therefrom to thy managers, advisors and directors. Accounting is the language of business.  It’s important to share financial information with those that help lead your organization.  Such information provides the scorecards by which your team can learn, pivot, when needed, and can guide your business successfully. Consider using your external and internal accountants to train your team in this area.
  6. Thou shalt develop a council of competent advisors. Family business gurus Craig Aronoff and John Ward wrote a terrific guide, “How to Choose and Use Advisors: Getting the Best Professional Family Business Advice.”  You do not have to go it alone. The success and survival of your business may depend on the professionals you choose to advise you in the areas of finance, taxes, law, business strategy, succession and other matters.
  7. Thou shalt submit thyself to the review of a board of competent outside directors. Choose folks that will help you think outside of the box, People that might challenge you.  Ones that bring you perspective from both within your industry as well as outside of your core business.
  8. Thou shalt choose thy successor(s). Do not let “decide-a-phobia” set in. Whether you choose a family member, an employee or someone from outside of your organization, give your business the best possible chance of success by properly vetting and choosing the next leader of your business.
  9. Thou shalt be responsible that thy successor(s) be well taught. Responsibilities for training the next business leader fall firmly on the family leader. Aspiring successors should demonstrate competence and model accountability. Education and outside experience can help to limit employee fears that the successor is chosen simply as the result of nepotism. Longer hours and tougher assignments during the transition process can inspire confidence among your employees and management team in the dedication of the successor.
  10. Thou shalt retire and install thy successor(s) with thy powers within thy lifetime. Often, the founder of the business will take a role as “Chairman of the Board/Founder” with the successor reporting to a Board of Directors or Advisory Board.  Day-to-day decisions and activities are left to the new leader.
  11. Thou shalt settle thy estate plans NOW, because thou canst not take it with thee. There are currently several formal proposed bills that would make changes to the current estate and gift tax system. And, as you might imagine, it’s highly unlikely that these taxes will be going down.  Make the effort to meet with your professional advisors and start the necessary planning to mitigate future estate and gift taxes.  Many of the proposed provisions are expected to take place in 2022, but we strongly encourage you not to test fate and allow the IRS to be a huge beneficiary of your life’s work.
  12. Thou shalt apportion thy time to see that these commandments be kept. Time is our most precious asset, but we only have a finite amount of it.  If you are leading your family business, this is our call for action to you to begin making some decisions and changes, while there’s still time to do that.

Running and later passing the baton in your family business can certainly be challenging, but a smooth leadership transition can create a productive and successful family, business and workforce that drives the business for years to come.

Ursula Scroggs, CPA, is managing director at DKSS CPAs + Advisors, with offices in Troy and St. Clair Shores, Michigan. Jean Stenger, CPA, is a senior accounting manager with DKSS.