Dave Ramsey's Entreleadership: Ask Dave
Tuesday, November 3, 2015
*Published with permission in the September, 2015 Newsletter*
Put on the professional hat
My father is one-third owner in our family business. He isn’t involved with the company anymore, but he still insists on taking a salary. I’ve become a little bitter over the situation, and I was wondering if you think there’s a solution or if I should just get over it. -Tracy
As an owner, especially one who is no longer actively involved in the company, he should be getting a distribution of the profits, not a salary. Specifically, he should receive one-third when the profits are distributed.
From what you’ve said, three owners form a board, or counsel, and you three direct the leadership and management of the company. If two of you outvote your dad on issues, he has to live with it because he’s what’s known as a minority owner.
Let me give you a visual. Draw three concentric circles so that they all overlap in the center. Any given two of them overlap on the sides, correct? It should look a bit like the Olympic symbol—a Venn diagram. In each circle write “owner,” “management and leadership” and “family.” This is a standard family-business diagram. Most problems in family businesses come when someone forgets which circle they’re in. You could be a member of the family but not have any ownership or be in leadership. You could be in leadership but not be part of the family or be an owner. You could also be a member of the family and be an owner but not work at the company. That would be your father.
I think you guys have to reset things in your business. It’s time for the working owners to sit down with your father and have an adult conversation about the mistakes that have been made where salaries and profit distributions are concerned. The discussion should be professional and gentle and go something like this: “Dad, we all set this up in the beginning. But we’ve made some mistakes because we shouldn’t be paying a salary to people who don’t work in the business.
“You’ve been repaid for your venture money and, from this point forward, you’ll be getting a distribution of profits instead of a salary. We think this is fair and reasonable. If you don’t agree, then we can discuss buying you out of your third of the company.”
I have two daughters and a son-in-law who work for me at my company. I love them with all my heart, but when we’re inside the building at work, we put on our professional hats and my name is Dave. I’m the boss and the CEO, not “Dad.” They work within their departments and answer to their leaders and to me. Then, when we sit down to dinner or get together for weekends and holidays, we switch gears and put on the family hats. It’s just Dad and the kids.
But you’ve got to have a professional relationship inside the family business. Otherwise, stupid things will happen or you’ll end up wanting to kill each other!
Prevent a Partnership
I’m thinking about going in with a buddy of mine as partners in a landscaping business. Should I have any concerns about this idea? -Mike
I would beg you not to do this. Consider buying it and having your buddy work for you, or let him buy it and you could work for him. Either of you could work for the other for a percentage of the profits without being an owner.
If you can’t tell, I hate partnerships. I know you guys are friends, but anything with two heads is a monster. Something will happen where there will be a disagreement, and you guys will end up being mad at each other. I’ve been doing business counseling and coaching for two decades, and I can tell you that precious few businesses that function as partnerships last 10 years. Law firms and medical practices may be the exception, but they have unique partnership structures.
So many things can go wrong in these situations. All the bad things that happen to your family happen to your business, and all the bad things that happen to your business happen to your family. Stuff you never dreamed about will occur, and then you’re stuck to each other.
The only ship that won’t sail is a partnership. Don’t do it, Mike!