Small, family-owned businesses have unique risks that are often overlooked by those running the company. As you can imagine, working with relatives can be challenging inside and outside the office. From maintaining a professional line of communication, to planning for future generations, it’s important to make sure you have the proper paperwork and procedures in place to protect your business and your family.
Avoiding Conflicts and Claims
One of the biggest challenges family-owned companies face is avoiding informal communication in the workplace. Depending on the situation, employees or family members may misinterpret messages and fail to act accordingly. Playful dialogue can lead to confusion, conflict or even harassment claims. Believe it or not, these claims are equally as likely to come from relatives who are frustrated by the outcome of a miscommunication. To prevent such occurrences, it’s wise to have written policies in place that cover long-term goals, define employee roles and outline the structure of the business. You’ll also want to make sure you’re consistent when it comes to communicating with all employees, even family members. Inclusion and fairness contribute to company culture, but more importantly, implementing them into your business plan can protect your business from liability and loss. Having the right business insurance coverage in place, such as a commercial general liability policy, can help keep your business better protected. A trusted commercial insurance professional will be able to match you with a plan that makes sense.
Contract Review
Understanding and adhering to written contracts can be a difficult practice to implement inside of a smaller, family-run business. Small companies are less likely to hire a legal professional to review contracts between suppliers or clients. This puts an immense amount of pressure on those conducting business to interpret the contents of the agreement. If they fail to do so, it can put the company in a financial or legal bind. Unfortunately, there are people in the business world who take advantage of smaller companies by intentionally drafting complex and time-sensitive contracts. We recommend speaking with a risk management expert you trust to craft an approach that brings your business risks into focus and helps keep you operating safely — and strategically — on the road ahead.
Following the Four Steps to Succession
It’s not uncommon for family-owned businesses to have a verbal succession plan in place without official documentation. These commitments may lack proof of legitimacy or recognition from key decisionmakers, leaving the business and family vulnerable. A simple way to protect your business and avoid conflict involves creating a succession plan. An effective succession plan has four steps that every business should follow — initiation, selection, education and transition.
- Initiation, the first stage of the succession plan, is where business owners create the outline for each step, down to the final action. This is the perfect time to map out training details, including key employee roles involved in the education process.
- The selection process might be the most difficult part of the plan for the current leader because he or she must decide on the best candidate to fill their role — despite existing emotional inclinations. In general, it’s best to choose a successor based on qualifications. Remember, the financial well-being of the family may depend on that individual’s success.
- In addition to being the most time-consuming element of the process, the education phase requires the most patience from both parties. During the company’s first succession plan, it’s a good idea to keep a record of training topics and materials so the next leader can build off of the initial training map.
- The transition stage ideally occurs whenever a trainee is prepared to fill the position. If the role suddenly becomes vacant due to illness or death, the successor might need more time to learn about their responsibilities. Inserting a clause that appoints an interim successor can help maintain operations if this sudden occurrence leaves the business unprepared for the intended successor.
Consistent communication and documentation can protect your company and your members from a multitude of risks. These precautionary measures can save you from losing valued partnerships and income from customers. Taking the initiative to implement professional practices mitigates workplace conflict and protects the livelihood of your loved ones. When it comes to their future, it’s best to eliminate the possibility of risk.
If you’re interested in talking to one of our experts, contact our risk advisors or visit us online for resources and more. The BCH team is here to help your family business — when it matters.