Succession Planning – Part 12: How Is the Pie Divided?

How Is the Pie Divided?

A important issue in succession planning is How Is the Pie Divided. Paying family, members and dividing profits among them can also be a difficult affair. Many persons feel that they are underpaid, but what about relatives who comment as follows:

 “Uncle Jack sits around and gets more than I do.”

“Aunt Sue goes to Europe on the returns of money her husband put into the business before he died ten years ago.”

“Your brother goofs off and rakes in more than you do.”

 How do you resolve such complaints? You don’t entirely. But if the business is a small corporation, certain equalizing factors can be accomplished by stock dividends. By re-capitalizing the company, some stockholders can take preferred stock with dividends.

 Salaries are best handled by being competitive with those paid in the area. Find out what local salary ranges are for various management jobs and use these ranges as a guide for paying both family and non-family personnel. When you tie pay to the type of work that the individual does, you can show disgruntled relatives the value that the industry puts on their jobs.

 Fringe benefits can also be useful in dividing profits equitably among family members. Benefits, such as deferred profit sharing plans, pension plans, insurance programs, and stock purchase programs, offer excellent ways to placate disgruntled members of the family and at the same time help them to build their personal assets.

 How the pie is divided is vital to growth in a small business. Profits are the seedbed for expansion, and lenders are influenced by what is done with profits. What banker wants to lend a company a substantial amount when relatives drain off its earned surplus?

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