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Family Policies on Hiring and Finance

Dear Advisor:

Please tell us your recommended policy on hiring owner-related employees. Also, please give us some advice on how to finance continuing growth at 15 - 20% per year, while allowing for some withdrawal of some cash for the founder's retirement.

Policies related to hiring family members vary based on the family business's stage of development, the owning family's goals and values, and many other factors. Having a family employment policy and sticking to it, however, is an excellent idea. Some families say, in effect, we have a job for anyone in the family who wants or needs one. Other families insist on rigorous preparation and high hurdles including graduate degrees and significant, lengthy, outside experience.

We suggest that families develop their own family policies at family meetings. We also recommend that family members be qualified for jobs they take, agree in advance to formal performance appraisals, answer to a non-related supervisor for as long as possible, and be expected to set a positive example for other employees in terms of attitude and performance. Finally, we recommend that family members joining the business do so on the basis of what they can do for the business rather than focusing on what the business can do for them.

Advice on financing growth is difficult to offer without knowing the specifics of your situation. Providing for the founder's retirement is essential, even if some tradeoff with growth is required. Funds for expansion can come from cash flow, borrowing or additional investment. Again, family consensus is crucial. Using cash flow requires that owners defer rewards. Borrowing requires disciplined use and understanding of financial ratios and agreement on risk tolerance. Additional investment may call for greater commitment by owners or accepting responsibilities to outside funding sources.




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