QUESTION: Tracy in Louisville says her father is one-third owner in their family business. He isn’t involved with the business but still insists on taking a salary. Tracy is bitter about it and wants to know if there’s a solution to this or if she should just get over it.
ANSWER: Draw three concentric circles on a piece of paper so that they overlap in the center. Then any given two of them overlap on the sides. It looks a little bit like an Olympic symbol—a Venn diagram. In each of those circles, write “Owner,” “Management/Leadership,” and “Family.” This is a standard family business diagram. Most problems in family business come when people forget which freaking circle they’re in. You could be a member of the family and not have any ownership or not be in leadership. You could be in leadership and not be in the family or not be an owner. You could be a member of the family and be an owner but not work at the company. That would be your father.
People who are owners of something and are members of families do not get salaries. The reason you’re bitter is he shouldn’t be taking a salary. As an owner, he should be getting distribution of profits—his one-third when the profits are distributed. As an owner, the three owners—I assume there are three of you—form a board, a counsel, of owners—a counsel of stockholders—and you direct the leadership and the management of the company on how you want the company run as a group of owners. If two of you outvote your dad on what the profit distribution is, he has to live with it because he’s what’s known as a minority owner.
I think you guys have got to reset this and say, “We made a mistake. We don’t pay people who don’t work in the business a salary. We distribute profits to people who don’t work in the business and are owners.”
We have misbehavior on your dad’s part. And you have boundary breakdowns and your toxic family script is now interfering with your business.
It’s time that you three adults sit down with your father and have an adult discussion—the four of you. The adult discussion says, “Dad, this is how family business works. We set this up. You’ve been repaid for your venture money, and you will be getting—from this point forward—a distribution of profits. For you to expect otherwise is unreasonable. If you want to be unreasonable, you have that right. If you want to be super unreasonable, we’ll start discussing buying you out of your third.” But this is wrong.
The way you’re saying that says, “If I was giving him $1 million a year and that was wrong and that was really stupid, I’m going to keep doing it because I’m not willing to face this.” That’s what your, “Yeah, yeah, yeah,” says. I can hear it in your voice you’re not going to deal with this. You’ve got to go deal with it because it’s going to drive you bananas. You’re going to end up getting so pissed off that you’re going to be unable to have a civil conversation about this. This is a civil conversation. People get confused about which hat they’re wearing.
I have a son-in-law who works for me. I have a daughter who runs our family foundation, and I have a daughter who works in our firm. But when we are inside this building doing business, my name is Dave. I’m the CEO, and I’m your freaking boss. I’m not your dad. And you don’t call me Daddy in a meeting, either. You don’t get to play that card not because I’m mad at you but because Daddy is a trump card. It’s a veto card in a meeting. You can’t do that. It causes Daddy’s heart to melt, and he makes stupid, bad decisions.
Inside this building, we put on hats that are professional. Rachel is a professional speaker. She is a high-quality speaker. She gets paid really nice fees to go and speak to college students and high school students and women’s groups. She is a professional young woman. She earns everything she makes and probably a little more. But like everybody else, she’ll earn her keep. And she’ll fight and she’ll win in the marketplace. The same with her old man. Then when we sit down and have Thanksgiving dinner, we take that hat off, and I put on the Daddy hat. Rachel puts on the daughter hat. Then that’s just fine. We can switch hats, but you’ve got to have a professional relationship inside of a family business. Otherwise you’ll kill each other or you’ll allow stupid things to go on.
QUESTION: Jake in Boston owns a successful barber shop. He’s running out of room. There’s a building he’d like to buy with its own parking, and the price on the building keeps going down. Should he prepare to buy this building? Dave has some questions about his success before giving an answer.
ANSWER: I don’t want you to be down to no money doing this, and there’s nothing pushing you out the door today except the fear of what’s going to happen and the ability to grow. If you waited six months, it’s not going to be the end of the world unless you missed one of these deals that you wanted.
I’m doing it if I’m you. That leaves you $20,000. You’re doing great. You’re going to have $20,000 in the bank and a baby on the way. You can build that other $10,000 back up pretty quickly because you’re making money like you’ve never made.
We pay cash or we don’t do it. And I wouldn’t go over $10,000. If you’ve got to do some of your construction of your stations in two phases and you save up the money for the second phase, that’s fine. But don’t spend over $10,000. I don’t want you below $20,000. That’s what I’d do if I were in your shoes. You’ve done a great job. You’re sitting there completely debt-free, money in the bank, ready to do it.
QUESTION: Molly in Indiana is a nursing professor and her family’s breadwinner. She’s considering leaving the private university she’s at to teach online from home. She will take a cut in benefits as a result, but pay will be comparable. Dave gives Molly some things to think about.
ANSWER: I guess it’s a pretty simple tradeoff. The other stuff really doesn’t matter much, but you’re saying, “If I take this job, I’m going to pay for my kids’ education. In order to be home with them, I’m going to pay for their education.” That’s probably going to mean they go to different schools. Are you willing to do that, or do you want to work for seven more years?
The typical high school student going into college is probably not an online student. That’s not the normal track anyway. It’s usually a brick-and-mortar scenario. Most likely, when your kid “goes to college,” it won’t be online, so I don’t think that’s going to be the deal.
Basically, you’re saying—and what you and your husband have to decide—is do we want to put these kids in different schools so that we can pay for it so that I can be home with them for the next seven years? That’s the decision. I don’t think there’s a right or wrong one there, by the way. I think that’s just helping you analyze it. The other stuff—the “benefits”—I wouldn’t trade that. Five thousand bucks here or there, you can pick that up tutoring a little bit. That’s not an offset. The other thing is an $80,000 or $100,000 decision. I’m okay with that. I don’t think you’re doing anything wrong going either direction. I think you’ve just got to set those in front of you and say, “Is this worth it?” It may be that you say you can’t afford for you to be at home on that basis. Or you say they’re going to go to a different school, they’ll have to work and pay for it, and you’ll work and pay for part of it so you can be home.
QUESTION: Amanda in Texas says her husband invited his sister, her husband, and their two kids to live with Amanda and her family since the husband just lost his job. Do they need a roommate agreement while they stay with Amanda and her family?
ANSWER: The chance of Sharon inviting someone to live in my house without me being in on the deal is about zero. That changes the discussion. You and your husband need to get on the same page long before we try to get these people on the same page or allow them into your house.
Once you’ve done that, then to answer your question, yes. Your purpose of allowing them to move in is not because we actually want more people in this home because gosh, with all these kids, we don’t have enough. That’s not your purpose. Your purpose is we want to give these folks a chance to get back on their feet. You need to ensure that they’re doing the steps to get back on their feet. That involves working, but it also involves you going over their budget with them. You’re not going to charge them rent, but rent is while they’re there, they go over this stuff because you want them back out of there. And you put a time limit on this. Regardless of what happens, they’re out of there by X date.
I wouldn’t suggest $70,000 worth of time. They just need to get back on their feet. I don’t want somebody living in my home until they pay off $70,000 worth of debt. If you do, you’re unusual people. I think letting them get back on their feet and doing the steps to get there is the big idea. I don’t know . . . three to six months or something. You just put down there by the end of the year, this will be over. If you want it to be a year and both of you agree to that, it’s your house. You can decide that. I don’t have to decide it. I would not just let this thing be in perpetuity where it just goes on and on and on. That’s going to get you guys in trouble. You need to set expectations on the front end. That way, you stand a chance of pulling this off and keeping the relationships.
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