Keeping Peace in the Custom Homebuilding Family Business

There's a saying, treat your business like business and your family like family. But what do you do when business is family? It's easy for lines to blur and for professionalism to go out the window. Is salary for family members treated as allowance? Should kids defer to parents in decision making? Are only the best-qualified members invited to join, or is inclusion a way to take care of those who might not be employable elsewhere?

Decisions about who should be allowed into the family business and why, pay structure for family members, and perhaps most importantly, procedures on how the business should be passed on or dissolved ideally should be made before your business even breaks ground. But better to get on top of it now than later. Openness to outside, non-family influences and expertise are key, as is open, honest and regular communication among family-member business colleagues.

It can be tricky and it may not be for everyone, but business and family can blend successfully and profitably.

The best of both worlds

If you have a passion for your custom home building business and a family that you love, what could be better than bringing the two together?

"It's the ultimate for me when I can have my son with me all the time, involved in everything that I'm doing," says Kent Pecoy, a custom builder and president and CEO of Kent Pecoy & Sons Construction in West Springfield, Mass.

But despite your desires, it would be wise not to push family members into joining the business.

"My father did very well," says Phillip Simon, president of Michael F. Simon Builders and a third-generation owner of the company. "There were three brothers and two sisters. He said if any of us wanted to be in the business, that's great. We were welcomed. And if we didn't want to, he'd support us in whatever we did. So I want to do [the same]."

Clear cut rules and expectations for family

You have to set ground rules and define expectations of employees in any business and all the more so in a family business where, as in many families, assumptions are often made and things taken for granted.

"If you have some guidelines as to what happens in your business, then you can professionalize your business, and the employees don't feel poorly about the family," said Laura Michaud, a family business expert, at an International Builders' Show workshop on family business dynamics in February. Michaud was a third-generation owner and executive of Beltone Electronics, her family's business, for nearly 20 years.

Michaud suggests drawing up a family contract that specifies the same sort of guidelines you would for non-family employees: their job description and responsibilities; what their salary will be; how much vacation time they can have; and the like.

There may be some special benefits of which only family member employees can take part; you reduce the likelihood of charges of unfairness if these are specified beforehand.

"When I had my children, I only worked four days a week, says Michaud. "But we actually had guidelines that said, this is what you can do, and here is how you compensate for it. When I worked only four days a week, my salary dropped. I would expect that."

Hiring standards, compensation and accountability

Paul and Brian Simon of Michael F. Simon builders in Wanakee, Wis., take their company's "have fun" philosophy to heart. Phillip Simon's (foreground) gradfather founded the company in 1893. Photo by Marc Berlow

A good rule of thumb for hiring, salary and performance reviews is to do unto family members as you would do unto any other employee.

"Do you hire a family member that is not competent for the job? I would say no," says Michaud. "Make sure Junior is getting whatever training he needs if he wants to join the family business."

You only hurt your business when you look at it as a means to provide financial welfare to family members who you would otherwise never consider hiring.

"A family business can either position itself to attract the best and brightest in the family or those who can't make it in the real world," says Ira Bryck, director of the UMass Family Business Center at the University of Massachusetts at Amherst who has custom home builder clients.

Salary also should correlate to previous work history, current position and performance on the job. It's not an allowance. If two brothers work for their father in his custom home business in different positions and have different skills and experiences, they should be paid accordingly.

"The core question is fair versus equal," says Andrew Keyt, executive director of Loyola University Chicago's Family Business Center. He is also a third-generation owner in his family business. "From a family perspective, we have the expectation that as siblings we will be treated equally. In a business, equal does not always equal fair. It's often toxic to the business to confuse the two. But it's also hard to talk about that as a family. Sometimes children hear, 'You're not going to make as much as your brother,' as, 'I don't love you as much as your brother.'"

Merit pay motivates performance. If siblings are paid the same regardless of what they do, it motivates a high performer, and it demotivates some who tends toward dereliction.

"It puts the 'golden handcuffs' on them," Keyt adds. "If they are not happy, they can't go anywhere, because they can't earn the same anywhere else."

Get out of the cocoon

Consider asking family members to work for another company — a custom builder in a non-competing market or perhaps one of the trades or suppliers in your area — before joining up with you. There's a benefit particularly for children who have been around your company their whole lives and have scarcely worked anyplace else. It will serve the dual role of broadening their work experience while giving them a fresh perspective to bring to the table if and when they join your company.

"If they want to come work with us after they get out of school, that's fine," Ed Wiesner, president of Weisner Homes in Katy, Texas, says of his sons. "They're going to have to go work for somebody else first. I want them to go learn and see how somebody else does it."

Ground floor opportunity

Family members with limited experience — especially those you want to eventually have a high level of responsibility — should start at an entry level.

"You start at the bottom," says Simon, "and you start out doing all the dirty jobs. That way down the road when you want to give directions to an employee, you've got firsthand experience because you've done it."

If your company is large enough to do so, have non-family members supervise family. There's going to be some inherent bias — positive or negative — toward family to some degree. Giving them reporting relationships outside the family lessens its impact.

Working his or her way up from the bottom increases the likelihood that if and when a family member is promoted into a high position of responsibility, non-family employees will be supportive.

Don Ferrier of Ferrier Custom Homes says his employees are impressed with his daughter Heather's ability and how she's grown over the years. "She could easily run this company, and they'd love to be a part of it if that happened," he says.

Family business meetings

Meetings are a part of business culture, and the way they are handled becomes key to a family business' success as well. Family business meetings are a great forum to discuss items that might otherwise fall through the cracks.

"There's an education that takes place there," says Bryck. "'This is what it means that our family owns a business. This is what it means if you are going to be the next generation in this company. You need to graduate from college, no drug abuse, and advancement is based on merit, not relationships. It's another means of communicating and reinforcing the ground rules."

"We think sometimes as families we're just supposed to communicate inherently," says Keyt, "so we just kind of leave it to chance. But this is about being intentional about it, being business-like."

Information control

Keyt says it's no coincidence that family-owned businesses are often called private or closely held companies. What's privately held is not just the stock but also the information — from outsiders, and sometimes each other.

"In first-generation businesses, it's common that all of the strategy is in the business owner's head," says Keyt. "He or she has all these great strategic ideas about how to grow and build his or her business. But they usually don't communicate them to others or put them down on paper."

Having an outside board of directors forces these lone rangers to articulate their strategy. They have to explain what they are doing and why to a group of objective outsiders, and it sometimes catches holes in their thinking. But some owners fear this means giving control to others.

"The board is there to provide accountability for articulating and achieving goals rather than control anything," Keyt says. "The reality is you can fire them tomorrow and put in a new board if you like. But what you're really trying to do is put together a board that you're willing to listen to."

Grooming the next generation

Many custom builders are steeped in the day-to-day operations of the business and don't often take time to think about retirement or the future of their company. Though that day seems far off, it's best to prepare now.

"First of all, you have to have the emergency plan," says Keyt. "What happens if I die tomorrow? How will the business open and survive tomorrow? That's question No. 1."

Because without proper planning, estate taxes can put you out of business.

Michaud refers to the Beltone family business. "All our money was in the company. Grandmother was of the Depression era; she was 95 years old and ailing, and she owned 75 percent of the stock. When she died, we were forced to sell our company. Think about estate planning. Move your money."

Keyt's No. 2 in grooming the next generation deals with successors. "If we're looking five or 10 years down the road, who are the potential successors? Are we wiling to consider non-family members? What are the skill sets that we're going to need? Who's got those skill sets?"

If you have someone in mind to take over the business, start the conversation now. Begin the grooming process, and be open about it. Sometimes it's the not knowing among siblings and other family members that causes tension and conflict. "We're in the process right now," says Kevin Krarup, president of Family Home Builders in Amery, Wis. "I'm almost at retirement age. I'm going to be turning it over, piece-by-piece, equally to both sons. My youngest son will take over my responsibilities as president."

Bottom line: Communication

So much of the advice here hinges on having a plan and communicating it to all parties. It's simple, but it doesn't always happen.

"It's so important to have clarity and understanding of all those issues," Keyt says. "Wherever there's a gray area is where emotions are going to push the deal. If you don't share information with someone else, it allows them to project their worst fears onto the situation. Half the time people's fears are worse than the reality."

"The more communication that we can have," says Simon, "the less we're going to have tension and those kinds of headaches. ... You always hear in real-estate that it's location, location, location. I believe in construction it's communication, communication, communication."

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