KAF Group - Article: Beating the Entitlement Factor in Family Businesses

Over the years outside professionals have always encountered unique challenges when advising privately held, family owned businesses. Many of the issues are obvious and there are several alternatives that can be implemented as solutions. However one issue that often surfaces and is difficult to accurately quantify is the concept of entitlement.

In most successful family owned business, the founder of the company is an entrepreneur with a vision. From the inception of the organization and through its first twenty years or so, this individual drives the success of the company and builds a strong foundation to allow for continued growth and prosperity. During this period, employees are often motivated, committed and involved with the Company's success. The leadership at the Company is strong and the ability to establish a "family environment" is a major contributor to the overall success of the Company.

However, in many family businesses, problems often begin to develop when subsequent generations become involved with the business. There are several potential issues that create problems when this occurs, some of which are easily detected and others that are not. One problem that repeatedly materializes is the "entitlement factor" and although owners are often aware of it, they have significant difficulty dealing with the problem.

The concept of entitlement can happen with long-term employees; however, it is mostly present with family members. In the most basic terms, it can be defined as the presumption that one does not need to work because they are entitled to "the fruits' of the business. As a result, these people often ignore the rules of the workplace, take liberties that are not available to other employees and tend to expect special treatment from those around them.

Absent timely action to address the issue, this type of behavior becomes a disease that will permeate throughout a company. It is often difficult for owners to see, or quantify, but its financial impact is overwhelming. Areas that will experience problems include:

Owners of family businesses often realize that certain family members are not "carrying their weight". They justify and tolerate this behavior based on the assumption that the company can support the costs. This can be a fatal mistake and one that should be avoided at all costs.

Well run family businesses usually build long-term relationships with their outside professionals. Although challenges surface when offspring become involved with the family business, trusted advisors represent an invaluable resource when attempting to navigate through the problems. These individuals have the ability to draw upon their experiences with several companies and provide guidance that will hopefully limit any adverse impact as the next generation transitions into the business. Key areas that they can assist with include:

Although outside advisors usually are the attorney or CPA for the company, it does not mean that the role is limited to these individuals. Many times companies build a true team of advisors that work in harmony. This team may include the attorney, CPA, banker, insurance advisor, or peers from the industry.

In addition, often times companies utilize outside directors to enhance the "professionalism" of the business and to ensure that "sound business decisions" are the focus of the Company. The presence of outside directors will often introduce a different and valuable prospective to the business and should not be overlooked as a valuable resource.

The bottom line is that is important for business owners to recognize the potential destruction that entitlement can have on a company. If the owner elects to avoid, or ignore, the importance of proper planning, the individual is taking a risk that could have a significant role in the future performance of the business. Key employees, as well as hard working family members, will resent the lack of effort by those who feel "entitled". Preventing this from happening is the key to harnessing the potential of the next generation and ensuring continued success of the business.

Patrick Furnari, CPA, MST, CVA is the managing partner of Tactical Solutions, LLC, and has over 18 years of experience in turnaround management, mergers and acquisitions, and business tax strategies, with particular strength in the areas of Finance, Strategic Planning, Vendor and Secured Creditor negotiations and Deal Structure. Mr. Furnari has extensive operating experience as a General Manager and as Chief Financial Officer in both turnaround and high growth situations. Pat can be reached at 781-303-0017 or email: pfurnari@tacticalsolutions-llc.com.