Is he supposed to have a vehicle allowance?
Why are you paying for his children’s health insurance?
What are all of these trips his wife is making to Montana?
These are actual questions that we have had to ask the owner/founders of separate small, family run businesses that were in the midst of an alleged fraud investigation. In all three cases the CEO or CFO we were investigating was related to the ownership. And in these cases, the answers to the above questions were
We don’t pay for anyone’s insurance.
I don’t know. She doesn’t work for us.
Entitlement. Greed. Misunderstanding. What happens when a family member is taking more than their share of the business? There are a myriad of things that we could address here (and more than likely will over time in this blog), but one practice that our office believes should be at the top of every to-do list when a family forms a company or one that needs to be put at the top right now is a procedure to DOCUMENT EVERYTHING.
More than just the employee handbook and a detailed fraud policy (which your business SHOULD have no matter the size). What are the job descriptions? What are the responsibilities of each employee and particularly the family members involved? What are the perks the business is happy to take care of? What are the expectations of management and leadership as the company grows and changes?
Documents are not sexy. They are not exciting. They are filled with bland descriptions, boiler plate legal jargon, and dry instructions. But how many family fights – family SPLITS even - could have been avoided by documenting all expectations?
No, this job doesn’t have a vehicle allowance but we have a procedure for mileage reimbursement if you need to drive for your job. If, in the future the company is doing much more business and you need to travel more often we are happy to discuss the vehicle allowance issue again.
The myriad of health care changes has made providing health care to ownership in our small office almost impossible, but we believe the salary provided should allow you to purchase and pay for your own insurance. If this changes in the future and we can provide health care for you and your family we will let you know through official channels and supporting documentation.
Our company has a very specific travel reimbursement policy. Please refer to it when using your company-issued credit card. We cannot reimburse travel for your spouse, who is not an employee, to visit her family. Please let me know if you have any questions.
These answers are obviously very specific to the issues listed above and would have been issued in conjunction with supporting information from the fraud policy or employee handbook, but your business can begin thinking about these things now.
If your business lasts long enough or if something happens where the leadership has to be passed down to another generation what orders are issued? What is the chain of communication? Who is looking at the new leadership’s expenditures and communications for the company?
Due diligence is rarely fun and exciting but it will save family businesses so much trouble in the long run. Proper procedures, documentation, and a clear chain of command with separation of duties makes things like raises, bonuses, vehicle purchases, land acquisitions, and avoidance of co-mingling of funds much easier to not only keep track of but in the event a person is abusing their position it makes dealing with the situation much easier. There is much less he-said she-said when everything is laid out and documented properly and while it is difficult to have to investigate and/or terminate a family member, when expectations have been shared very, very clearly the issue can be moved past and then relational healing can hopefully begin while the business tries to pick up the pieces much more quickly and efficiently.
Take time to have the tough conversations with your family. Prepare documentation and processes for the next generation that will take the wheel in the future. The Strategic Offensive principle of war and game theory states that “the best defense is a good offense”. This is the perfect place to apply this. Running a small, family-owned business shouldn’t be a war, but staying ahead of the issues will give you a huge advantage over what is coming.