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How to deal with conflict in the family business

Sep 11, 2018
How to deal with conflict in the family business

If you are a family running a business you will inevitability have conflict.  The conflict might be over financial matters, the tax structuring, how you talk to each other, the business strategy, remuneration or just the colour of your business cards.

Conflict is normal.  And conflict is a good thing.  It challenges how the business and the family will operate.  It makes family businesses work better in a challenging Perth market.

Step 1 – understand yourself

Gaining a deep understanding of what is important and what is not important to you is critical into getting a resolution.  If you do not know what you want you will not get what you want.

Sometimes a family will use one argument to defer a way of not talking about a deeper issue.  Quite often during a discussion we often find that the conflict is not over a taxation or financial matter but something else altogether.

Understanding yourself should also extend to understanding your communication style in the family – do you talk “through” a family member (like the mother) or is your style direct.  And is your style of communication the best way?

This understanding of yourself and an understanding of the family business is critical to getting an outcome that everybody in the family is happy with.  It often starts with a discussion on what the values are within the person, the family and then the family business.

Gaining an understanding of the family values, in step with the development of the family business values will often uncover a divergence in attitudes and then provide clarity to the family.

Step 2 – understand the other person

Franklin Covey once said – “see first to understand then to be understood”.

One of the advantages of a family in business is that, at some time, the family chose to run a business together because they loved each other. And if this sense of love is focussed upon it is a natural step to deeply understand the motivations, drivers and rationale of the other family business member.

Typically the motivations from one family member in a business are rationale – a younger generation might be seeking greater equity to help them buy a home tax effectively, an older generation might be seeking simplicity from the ongoing financial management or clear tax strategy on exit.

If another family member has a rational argument you are often well placed to identify strategies that can accommodate the other person.  That approach might be to secure an income stream for an older generation while freeing up capital in a tax ineffective structure, altering remuneration strategies to allow a person greater ability to borrow money from the bank or splitting the business into several different departments to give autonomy to the ongoing operations.

Step 3 – get another perspective

Quite often the emotion in a family business is so strong that it is difficult to identify new strategies.  Often the concept of applying a “better” strategy is impossible because it acknowledges that the current position is not already the best.

At this time an outsider to the family is important.  A different perspective from an advisor who is engaged but independent is a great way to shed light onto an old and difficult issue.

Sometimes this advisor for conflict resolution is a family friend.  However, a family friend is often (not always) the friend of one family member only.  So using a friend of say, the parents, to talk to a child might not create the desired outcome.

Often the outsiders perspective is not an outsider at all – but merely an agent of one family member.  So the exercise of getting an outsider is potentially doomed from the start.

The current family board of advisors is a good starting point.  The outsider could be the family accountant or lawyer.  In some situations, the outsider will be a dedicated family business advisor who might have a background in psychology or business.

However, if your outsider does not have a deep knowledge of families in business the outsider can actually do a large amount of damage to the family business.  Often the issue at hand can be deferred for a decade or more.  So we cannot stress enough that an accredited Family Business Advisor with Family Business Australia should be sought – otherwise you run the risk of a person who is simply trying to grab any business that comes past them.

The accredited advisors have a background of law, finance, business, taxation, psychology and human resources.  You can find an ideal person that is the best fit for the family.

Taxation in a family conflict

We understand that taxation is rarely the primary point of conflict.  However, in a family business, the presence of taxation cannot be understated – whether the conflict is over remuneration, succession, fairness or recognition – taxation will be a factor.

Of course, there are other factors at play.  Professional esteem, culture, love and relationships are completely independent and infinitely more important.

However, if the conflict involves a monetary matter the solution must involve a considered tax strategy prior to it becoming a final answer.

A final point

Quite often in families, the “conflict” is never resolved – however it can be acknowledged.  Getting an issue out in the open and discussed is important.  If everybody at the table has a respectful understanding of everybody’s current position – that is a great start.

If you perceive that the only way for family conflict to be resolved is for the other person to change – you are probably on the pathway for disappointment.  Being prepared to take on disappointment and changing your attitude is a critical step to getting a difficult issue on board.

At Westcourt we have one focus only – making family-owned businesses great.  The real-life experience in starting, running and managing a family business, a pure focus together with specialist’s qualification in family business give us a competitive advantage that no other Perth accounting firm can offer.

 



Category: Family Owned BusinessFinancialLegalPopularTax

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