Three views in small packages - personal views on aspects of family business management

Nation's Business, May, 1991 by Sharon Nelton

Three Views In Small Packages Snippets of useful information and inspiration turn up now and then in my travels around the country and in the daily barrage of mail and telephone calls. Here are some worth passing along:

* Business plans are more than tools for getting loans at the bank. In a family firm, they make everybody accountable and spark communication among family members, according to Sam H. Lane, president of LBF & Associates, a Fort Worth management-consulting firm.

Lane says that by stating goals, naming those who are to accomplish them, and establishing deadlines, a strategic business plan--on paper--gives family members objective criteria for evaluating one another's performance. "It shifts discussion from 'I thought you said ...' to 'Here's what we said we were going to do,'" he explains.

A written plan, Lane says, moves family members' attention away from emotional issues they may not be ready to handle and focuses their concentration on goals that they can rally around, such as, "Let's make the business better so we can make more money."

It also can serve as an instrument of communication--and education--when it is provided to family shareholders who do not work in the business. Sometimes such shareholders--because they don't understand the business and don't know why they're not getting a greater return on investment--become impatient with the family business's managers. A well-crafted plan, says Lane, can help them understand the business better and can increase the credibility of the family members who manage it.

* As we've said before, inheritors of family businesses are often looked upon as people who got something they didn't earn. The image, says Chicago psychologist Kenneth Kaye, is one of "a lucky, probably underserving heir." But he says that such an image can be turned around if the successor actually buys the family business from parents or other relatives.

"Psychologically, the most important advantage of selling rather than handling over the business may be that it makes choosing a successor a process of self-selection," says Kaye. "Which candidates are willing to risk their own capital, or assume debt? Are they able to impress lenders or outside investors with their competence?"

It may be hard to do--there may be tax problems to work out, for example. But Kaye urges taking the trouble. When offspring buy the business, he says, it suggest determination, commitment, the development of a business plan, and fair compensation to the rest of the family.

* And the final words are from Earl G. Graves, family-business owner and publisher of Black Enterprise magazine, on its 20th anniversary: "When I shut my eyes, I can still see that first magazine rolling off the presses and relive the emotions I felt. I was anxious about whether my 'paper child' was going to survive its birth and live a long and healthy life and, at the same time, so very proud to have my real children witness such an historic moment for our family and, yes, this country."