Did you join da family business?

November 9, 2006 8:59 PM

Tell me what I should expect.

I recently joined my family business after spending years in another professional field.
The transition has been fine though I have a few concerns.
One, my parents have been running the business themselves for the past 15 years and have their own "processes and procedures" some of which are uniform and some of which defy explanation. The accounting for one, is something my father does and promises he'll explain at a later date though part of me doesn't even want to know. My mom is a micromanaging megalomanic and while they both say they'll retire in a few years, I'm concerned about what the transition might be like. Will there be myriad tax issues? Will I have a difficult time trying to figure out exactly how they did things...establish relationship with vendors, etc.

This might seem simple. I could simply ask...and I have...but my parents are very old-fashioned and my father, an immigrant to this country. If anyone has had similar experiences and can tell me (and I know this questioin is kind of all over the place and vague) where I might find some resources on how to deal with this situation, I'd appreciate it.

posted by notjustfoxybrown to work & money (8 comments total)

Yeah, something doesn't sound right to me, and tax delinquencies of some kind would be my guess. I'd investigate this to make sure you're not taking the helm of a sinking ship (though you did say you're already on board). If you can't get access to the books, then I'm sure it will be waiting as a surprise when they retire.
posted by rolypolyman at 9:10 PM on November 9, 2006

Well, I do know the ship's not sinking..as a matter of fact..it's spawned other ships (OK..totally figuratively...The business is growing.) But I just want to make sure it's something I'll understand how to do...and make bulletproof..by the IRS and other sources.
posted by notjustfoxybrown at 9:13 PM on November 9, 2006

Um, vagueness in accounting is a bad, bad, bad idea. Start learning that now, even if you have to make a pest of yourself.

The total resource for everything IRS you need to know is irs.gov. Your state's Secretary of State website is a good place to start doing some reading at, too.
posted by SpecialK at 9:20 PM on November 9, 2006

I guess I'm not really explaining myself well. The accounting thing is a tiny concern, not a major one. We have an account that we've been working with for about seven years and he does a great job. I guess I'm more concerned about my parents actually relinquishing control..Yeah, that's it. I'm worried that they'll never actually give me the business....just sort of hang on long after they've done what they needed to do.
posted by notjustfoxybrown at 9:24 PM on November 9, 2006

That should be "accountant."
posted by notjustfoxybrown at 9:24 PM on November 9, 2006

I work in my family's business. I never thought I'd end up there, but after some poor planning on my part, it was my safety net after college. I landed there in January 1992 and have never left, despite some headaches along the way.

When I started, I knew very little about the business. I learned quickly, and I suspect you will, too. For good and ill, you'll know lots of the ins and outs that regular employees would never hear. You'll talk about the business on weekends. At holidays. On vacations.

My father, too, had some odd systems in place. He, too, planned to leave the business within a few years of when I started. (He had been diagnosed with terminal cancer.) My brothers and I spent several years just working normal jobs like anyone else, but we asked more questions, and had more contact with our customers. Dad knew that we would need to take his place, and so he slowly eased us into it. But we didn't start out doing everything that he did.

As death approached (I'm sorry if this is morbid), he began to reveal more and more about the reasons he did things, especially about his quirky systems. He gave what advice he could. He wrote out all sorts of notes documenting appropriate procedures. He tried to make sure that at least one of us could handle each area of the business: sales, production, computer programming, accounting, etc. Largely, he succeeded.

After he died, we struggled to find our way. It didn't help that our market was in a severe downturn. With time, we modified his procedures and methods to be more in tune with the way we thought and operated. The business now runs better than it ever has.

I guess what I'm trying to say, in a long-winded way, is to be patient. Move slowly. Over the past decade, I've talked with many customers involved in family businesses. Some have experienced similar transitions. In each case, the next generation has only gradually taken over, watching and learning while the older generation continued to run the business. If this business is your parents' lives, then they're well aware of the issues they face in turning it over to you.

Good luck!
posted by jdroth at 9:40 PM on November 9, 2006

First of all, "giving" you the business is itself fraught with tax implications and other business issues, and may not be the most advantageous way for either you or your parents to transfer interests in the business. What you want to do together, although it is more your parents interest and need as the current business owners, is to set up a business succession plan that works in conjunction with their retirement and estate planning. And you, as the putative successor to the business, will have new obligations and interests with the business, as your ownership is asserted through the succession plan process.

One common scenario is that you "buy out" your parent's interests from the proceeds of the business, over a specific term, at a negotiated price. Basically, your parents sell you the business, taking back a promissory note for its value, which you begin servicing from the earnings of the business. In the meantime, they remain on staff with the business as employee/consultants with defined but diminishing roles, as you assume managerial and decision making control of the business. Should you fail to operate the business in a manner that services their note acceptably, they retain rights to revoke the sale, and you have an out if they choose to do so. Or whatever you want to write up, with them, in your purchase and sale agreement. :-) But, doing this, you establish a fair market value for the business, and clarify many tax and inheritance issues.

You can begin this process by reading some books with your parents, and, at the appropriate time, making an appointment to discuss the matter with your CPA and the attorney for the business. These can be delicate matters for family members to discuss, but it can also be a time of great pride and familial connection, if properly approached.
posted by paulsc at 9:55 PM on November 9, 2006

JD,
Thanks a million for your insight...This is exactly what I was looking for...though searching rather poorly...and paulsc, I've got a law degree so I know about the "giving" versus "buy out"...I really wasn't using "giving" as a term of art...but thanks for the reminder.
posted by notjustfoxybrown at 10:01 PM on November 9, 2006