The CPA as Family Adviser

Helping family businesses navigate between the family and the business. Family-owned businesses represent the heart of America. As important as they are, however, special challenges, conflicts and problems mostly related to managing the complex boundaries between the family and the business constantly threaten them. CPAs often are the closest, most trusted and typically the first professional advisers who discover such problems. They have the opportunity--and the challenge-of helping family businesses overcome the dangers they face. CPAs can help not only with huge problems that threaten to tear the business and family apart but also by anticipating lesser concerns and offering advice on addressing them. In an ongoing poll of family business advisers, we found that over half of their clients had conflicts that made it difficult for them to follow sound business advice. Accountants working with family businesses can do a better job if they understand the special dynamics of such businesses and use this knowledge to help their clients deal with important financial issues. In a sense, CPAs may need to become "financial therapists" to help family businesses through certain difficult circumstances. Working as a family business counselor entails modifying the traditional CPA role in two ways: 1. The CPA must strengthen his or her role as an adviser to the entire family business and not just advise the individual business owner alone. CPAs should tell business owners explicitly that they must adopt a different role. In many cases, the difference between the two roles is negligible. However, the CPA needs to become an adviser to everyone who is a stakeholder in the business--including current or potential owners. This may mean telling the owner he or she needs to share more information with family members or involve more of them in the business. This role shift may help prevent conflict-of-interest problems for the CPA, for example when he or she is asked to do estate planning for the business owner and the owner's testamentary wishes are not in the best interests of the entire family. 2. The CPA needs to spend less time on current problems and more time looking ahead and helping the family develop processes, procedures and agreements that anticipate difficulties. Issues such as succession, future strategic choices or employing family members are things family business owners often try to put off. CPAs must let the owner know this delay may be costly. Helping family businesses anticipate concerns and draw up policies to deal with them can prevent conflict. For example, if a family develops a family employment policy that describes who is entitled to join the business and under what circumstances, it is less likely that family members will feel the resentment that occurs when employment decisions are made arbitrarily. THE PSYCHOLOGY OF FAMILY BUSINESSES Issues such as a family member's role in the business, compensation, control, succession and sharing information and power are not unique to family businesses. Nor are conflict, greed or jealousy. But the intensity of feelings, the confusion of family roles vs. employment roles vs. ownership roles, the history of relationships and psychological baggage all add to the unique challenges CPAs face when advising family businesses. Entitlement, for example, is a major source of conflict: "As oldest son, I am entitled to be president." "As owner of a (minority) interest in the company, I am entitled to tell employees what to do." "As a member of this family, I am entitled to represent the business in the community" "As chief financial officer, I am entitled to tell my cousins how to spend their dividends or to withhold them entirely if they are wasting the money" These statements use the business to reflect a family expectation. Family businesses may go to great lengths to avoid talking about such expectations. …