During the first quarter of this year I had the great privilege of witnessing a significant accomplishment by a long time client. I started working with this family in the late 1980’s as they were contemplating exiting their business due to some feedback from their lender and general frustrations with short cash flow. They asked me to take a look at their situation and share my assessment and recommendations.
Their lender had indicated that since they were not able to “zero out” their operating loan once a year from the operating cash flow of their business, this suggested they were not making money. The lender further argued that if they were not making money they should consider exiting their business. My client was alarmed and considering an exit. I dug into the numbers and had extensive discussions with the client. My analysis indicated that in fact they were very profitable but the combination of their growth rate and the structure of their balance sheet was creating their liquidity challenges. I shared with them that they were bankable and they could likely have their choice of lenders. They shopped their financing package and were presented with financing offers from 3 different lenders. The flood of emotional relief this family experienced upon refinancing was moving.
Fast forward to the first quarter of this year, 25+ years later, to the incredible experience for me. At our annual planning meeting where we were reviewing their financial statements, this client proudly shared that as of this past December they had completely paid off all of their debt. Their personal equity position is now over “8 figures”, they have plenty of liquid assets, and their business continues to churn out positive earnings and cash flow. We spent the meeting discussing the future for them personally, for their family and for the business. The pressures they now face are around stewardship of their sizable equity position, and making choices between options – enjoyable challenges to consider. It has been my privilege to serve this family along their remarkable journey of success.
A common challenge for family members in business together is communication. How well family members are communicating impacts the family’s ability to work together effectively, a capability that is foundational to healthy families and healthy businesses.
One key to effective communication by leaders is being thoughtful and deliberate about WHO Knows WHAT and WHEN (WKWW). Information and its flow is a powerful influence within families and businesses, and WKWW sends signals as to one’s standing.
If family or business leadership conveys important information to one or more persons at the exclusion of others of supposed ‘equal standing’, this can signal that some have favored status. This will likely lead to anger, hurt feelings and an erosion of trust among those who feel they were slighted by not receiving the information. Further, those who received information may start to believe they are ‘special’ and entitled to different access – making it difficult to adjust to any requests to change the flow of information going forward without escalating resentments in the system.
A few thoughts on how to reduce the risk of these problems. First consider whether the information to be communicated is primarily a family matter, a business matter, or an ownership matter. Then communicate within the proper venue – family matters at family meetings, business matters at management meetings, and ownership matters at board or ownership council meetings. That way the right people will more likely received the right information at the right time.
The second thought is role clarity. For very good reasons some family members or management team members should know certain important information exclusively or before others in the family or on the management team. Having clearly defined roles within family and business governance will help set appropriate expectations as to the flow of information.
Finally, for important information that needs to be communicated, think through and visualize: the appropriate venue, the best person to convey the information, the sequence and the timing. Consider who will be most impacted by the information and the magnitude of any changes that will come along once the information is conveyed. Taking the time to visualize the roll out of the information will increase the odds that you will get the roll out right.
WHO Knows WHAT and WHEN? Getting this right will help your family and business go a long way to not hurting others feelings, an important part of working together effectively.