When the Dead Pick Your Business Partner

Dartt 100x150
Barbara Dartt, DVM, MS

“I had always wanted to be a nurse,” explained Rachel. “After 15 years as a stay-at-home mom, I went back to school, earned my degree and then got a great job. I worked just one town over from where we live and where my husband Tom’s family business is located. Tom was at work all the time, managing the business and I was close by with a flexible work schedule. After 20 years of patience and work, our ideal plan had come together. And then Tom died.”

When Tom died, Rachel became a 50% partner with her mother-in-law, Rita. Rachel’s father-in-law had passed away many years ago and Rita had been an active business manager and owner for years. She’d recently begun to step away from day-to-day decision making. But now that Tom was gone, she moved back into her active role.

Tom has three siblings, two of whom had worked in the family business, on and off. Rachel had never worked in the business and was concerned with Rita’s intentions. Rachel and Tom’s dream had been for their (young adult) children to have an opportunity to work in and own the business. What did Rita want? “Rita won’t say what she wants right now. I think she’s afraid that whatever she says, it will make someone unhappy. It will be hard to get her to decide.”

Rachel chose to quit her job and come to work in the family business. She saw no other way to ensure that her voice was heard. And no other way to protect the future she and Tom had discussed for their children.

Tom passed away with life insurance and strong operating agreements for his entities – ones that protected owners and the businesses from liability. However, there was no buy-sell agreement. No future plan for business ownership. Today, the business is saddled with two reluctant owners.

Rachel is an owner by default. She’s chosen to exercise her owner’s voice by trying to manage the business, with no experience and very little knowledge about financials or operations. Rita is an owner by legacy. She had hoped to back away from management but also felt the only way to exercise control and “protect” the business was to be an active manager. And that’s about all they have in common.

A team functions best when they have common ground — a shared purpose. Logically, Rachel and Rita could work on that shared purpose by jointly answering the question, “Why do we want to be in business together?” Practically, they don’t have the depth of relationship, the understanding of their roles (as both owners and managers) or the trust to answer that question today.

So they are 50/50 owners, yoked together by fate. They are both working to overcome grief of Tom’s loss that came suddenly and too early. Owners, thrown together by the death of a key business figure, rather than owners who affirmatively chose to be in partnership together.

The obstacles are huge. And preventable.

This is obviously an extreme example. However, every family member who owns or manages a business can ask themselves two key questions:

  1. First, do you have “affirmative” and engaged owners? Affirmative owners are those who have chosen to be owners. Engaged owners are ones who are clear on the rights and responsibilities of ownership and have the knowledge and maturity to effectively make ownership decisions.
  2. Second, are the owners aligned around why they are in business together? This trait is fundamental to effective owner teams.

Talking about what ownership might look like after you are gone is not usually fun or easy. But it’s one of the best gifts you can give your family. And one of the best investments you can make in the future of your business.

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