6 tips to fireproof a family business: STEP

In 1988, David Bentall was part of a half-billion-dollar family business — Bentall, which specializes in real estate advisory services. But a falling out between his father and uncle left the family with nothing.

Read: Make succession planning a priority

“My dad died with a broken heart, never reconciling with his brother; our family was torn apart,” says Bentall, who wouldn’t go into specifics at the STEP National Conference luncheon on June 10. “That’s why today I spend all my time trying to assist families [so they can] avoid the mess we got into.”

Aside from the name, he and his family have no ownership stake in renamed Bentall Kennedy, a Canadian-based firm that employs over 1,000 people.

Read: Get owners to consider succession

Bentall, founder of Next Step Advisors Inc., says if his family had followed these steps, they would’ve held onto the business and had long-lasting relationships.

1. Recruit an independent board of directors. This helps resolve family conflict, bridge generation gaps and provides third-party insight.

2. Train the next generation to become competent owners. Ask kids what their goals are for the future and whether they want to partner with siblings.

Read: Wealthy clients want succession advice

3. Anticipate how you will minimize and manage conflict. A shocking 71% of family firms haven’t decided how they’ll resolve conflicts, Bentall says. But such terms should be specific and written down. While the most common resolution is a shotgun clause, he doesn’t believe this is the best option because it can actually create more conflict.

Read: How a shareholder agreement works

Instead, his firm has an auction clause if a shareholder wants out. For instance, Bentall comes up with an initial offer, the other party has 60 days to agree or counter, and then there’s a five-day period to respond. Also, subsequent offers must be at least 5% higher.

4. Separate retirement funding from the business. If it’s too late to do this, then kids should have an after-tax income plan for parents, where they pay them a set amount each month.

5. Require outside work experience before letting kids join the family business. The family, as well as company employees, will view the successor as more competent.

Read: Phased retirement: A choice or necessity?

6. Consider charitable giving. This helps strengthen leadership skills of successors. Also, when a company gets involved in the community, it creates a team atmosphere.