Disputes in business are inevitable, unfortunately they are often just as unavoidable in family businesses. The additional complication of the added emotional investment into family business, and the hurt that can come with perceived slights and mistreatment can lead to a powder keg of anger and upset that can easily overcome a healthy business if not unresolved.
Many family businesses in such a situation find themselves turning to expert forensic accountants to assist them, to help resolve the issue, and restore normality to the business, and to the family.
A forensic accountant can prove invaluable in family business dispute resolution. In this blog we explain what disputes are common in family business, plus how a forensic accountant can help.
Types of Family Business Disputes
When it comes to a family business, disputes can be unavoidable. Issues surrounding benefits, terms of ownership, finances, and more can lead to long-lasting intra-family rifts if it is not dealt with. It’s important to remember however, that disputes in business are natural, and can actually be a sign of a healthy business with owners that want the best.
When it comes to family business dispute resolution, it is first of all important to understand what can cause disagreements in the first place.
Since no two companies, and certainly no two families are ever the same, there are a multitude of different potential reasons for a family business dispute, below we have detailed just a few of the major, common ones that we have come across during our time helping businesses.
Money
Financial issues are likely the most common cause of business dispute across all companies, family businesses are no different.
Matters of money can very quickly become major sources of disruption and conflict among senior members of a business, particularly when the emotions that can be prevalent in family businesses are taken into account.
Financial issues can also be particularly disruptive in cases where family funds and business funds go hand in hand. Not enough distinction between family funds and business capital can make situations of financial difficulties that bit more complicated, and lead to tensions rising in turn.
Ownership
Being the owner of a family business can be a huge burden to carry. Stresses that can come with the day-to-day ownership of a business can feel amplified once a family dynamic is added to the mix.
It is also worth noting that it is fairly common for the owner of a family business to be a senior member of the family, a matriarch or patriarch figure is common. Therefore it is vital that the terms for the next owner is made as clear as possible should this senior member no longer feel that they can handle the toll that business ownership can take.
Benefits
It is not uncommon for some businesses to hand out financial or opportunity based incentives to employees for a job well done. A bonus would represent the most common example of this.
In a family business dynamic, if one family member feels that another is getting preferential treatment when it comes to these benefits/bonuses it can quickly lead to conflict that will need to be resolved. Unjust benefits can impact the recipient, and also whoever authorised it in the first place, their position can be undermined by their favouritism, possibly leading to them becoming untenable if not mediated carefully.
Entry and Exit Guidelines
The appointment into any business should be earned based on hard work, on merit, particularly when it means a position of authority. It is common in family businesses for these lofty positions to be handed out due to lineage, and not performance or suitability.
This can cause conflicts from other family members who may have felt that they had to earn their spot without a handout, additionally, other members of the workforce may feel passed over for a family member who deserves the role less, this can cause low morale, and could lead to key members of the team leaving the company.
Succession Plans
Losing a senior member of the family can be tough for all involved. Then, once the question of inheritance and succession comes into question the situation can get ugly very quickly.
Lack of clarity and communication on the inheritance, and succession plan of the business can cause a feeling of anxiety among family before a death in the business, and after it can lead to dispute, and rifts that can impact the family dynamic for years to come if not handled delicately.
The Role of Forensic Accounting in Resolving Family Owned Business Disputes
No matter what the issue, an experienced forensic accountant will have all the skill and expertise needed to enter into, and assess any situation and devise a logical, efficient strategy to resolve and mitigate whatever the dispute, whatever the business.
Money
When it comes to issues of money, a forensic accountant will approach the situation delicately – but due to the possible need for urgent action, they may also be required to upset the apple cart somewhat.
A forensic accountant will be able to provide internal checks of the businesses operations, to highlight areas for improvement and help to guide the business into more profitable times.
When it comes to financial disputes, it is recommended that a forensic account is instructed as soon as possible to mitigate the risk of a business sinking into serious financial difficulties and needing to lay off vital staff, or even be forced into liquidation.
Ownership and Succession Plan
For matters surrounding wills, estates, trusts, and business succession, a forensic accountant can provide clarity, as well as ease any fears of wrongdoing from any of the parties involved.
A forensic accountant will analyse the management of the business, review documentation, conduct relevant interviews, and more, to ensure that all assets and titles are distributed fairly and evenly between parties, to avoid the possibility of litigation.
Misappropriation of Funds
Suspected misappropriation of funds can be an emotional time in any business, particularly if it involves the inner workings and dynamics of a family business.
It is vital that business owners seek out an independent, expert view when fraud or misappropriation of funds are suspected in order to conduct a thorough investigation, to uncover any security flaws, assess whether suspicions are valid, and if appropriate, seek out any culprits involved.
Valuations
A family business may wish to seek the assistance of a forensic accountant to alleviate any concerns that may arise surrounding the businesses valuation.
A dispute surrounding valuation often arises when one party wishes to sell their stake in the company and branch out on their own, or to resolve a shareholder/commercial dispute. A forensic accountant will provide an expert and impartial valuation of the business, including its infrastructure, and assets.
How Inquesta Helps with Resolving Family Business Disputes
No matter the reason, a family business dispute can be a testing time for a business, and all involved. The best step you can make to resolving such a dispute is to seek the help of a specialist forensic accountant.
An expert will be able to use all of their skills, training, and experience to bring the dispute to as amicable an end as possible, while always aiming to direct the situation away from litigation – and the significant time and money that can take up.
If you find yourself caught up in a family business dispute and feel that you need a forensic accountant to assist you, Inquesta provides a service you can rely on. We have decades of experience in family business dispute resolution, and all of the unique dynamics that can come with such situations.
We are totally dedicated to providing you with the best possible service, and coming to the ideal outcome for our clients.
For more information about how Inquesta can help you, contact a member of our team today or book a free consultation.