‘Don’t worry, it’s all agreed.’ These words may bring a shudder to you when you hear them because you know it’s probably nowhere near ‘all agreed’.
Family businesses are personal and are often built on lifelong relationships. Relationships with customers, suppliers, manufacturers, financiers, senior management, employees – really, potentially anyone involved in the business. Trust and friendship are key ingredients.
This also extends up into the realm of equity, family loans, guarantees and assets provided as security. The agreements that may exist between siblings, cousins and any family member are often made around the family table and never documented.
All of this is well and good – until something goes wrong, and an unexpected event and/or succession lifts these issues to the surface:
- A key family member passes away and their benefactors were never aware of ‘the agreement’ or simply want to rewrite it, which is not hard seeing it was never written down anywhere.
- Succession is on-foot but one side of the family don’t have the same view as to who the next CEO should be or how equity should be passed down to the next generation.
Agreements that were rock solid now become paper-thin.
And although it is not pleasant to hear, as you get older your memory is not what it used to be, and you are really not too sure what was agreed.
No matter who you are dealing with, prudence and good business practice simply requires that any agreement or variation thereto, must be simply and clearly documented and safely filed away. If there are key aspects of your business that are based on understanding and trust, you need to tie them up and document them, now.
Active Knowledge Question:
Make a list now of all the key agreements you have that relate to your business, and its ownership and funding. Is all your paperwork accounted for and in order?
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All the best in the success of your business,
Richard Shrapnel
