Vince Mastrovito - Family Business Culture

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You can get it free by texting exit plan with no spaces to 442-22. That's exit plan to 44222. Again, text exit plan to 44222. Welcome to the Exit Coach Radio show, the show for baby boomer business owners who are looking for cutting edge information as they plan their 3 to 10 year business succession and exit. Every week we interview top professional advisors for. The best tips, strategies, and precautions so you can be well planned. And don't miss our one minute exit coach tip of the day on exit coachradio.com. And now here's your host, the exit coach, Bill Black. Well, hello everyone. Thanks so much once again for joining me today on Exit Coach Radio. Uh, we, you're in luck, uh, for our first guest today. is someone who's joined us many times and shared lots of great information and tips with us, and we've been talking the last couple of times. You've probably caught the series on family business strategies, and my guest is Vince Mastrovito. He's a CEPA, which is Certified Exit Planning Adviser, and a CBEC, and he's a, he's the head of Prometis Partners in Grand Rapids, Michigan. And again we've been having some interesting conversations. We're going to continue that again today. So welcome, Vince. Thanks so much for joining me this morning. Well, thank you, Bill. I really appreciate it and I love being on your show, so thanks for the invite. Love having you. We've always get great comments, great information, and you've helped our listeners really in this family business marketplace, especially in our last several, um, a series of interviews, really get some great information, and today's going to be no different. We're going to, we're going to carve out a segment discussing what family business policies. Yeah, I thought we would talk about family business policies, you know, there are, there are so many aspects to owning a family business, whether it be small or large, um, and You, I think it's just a great way to put down in writing and have some guidelines to To not only help you make decisions inside the business, but also let's talk about decisions on how we're going to have relationships between the family members. Um, and I just think that that's, I think that's just a very important piece that we really want to try to accomplish when we're putting together some policies. I think it's critical because a lot of times, um, you know, you walk into a family business and we find out that there's um beyond the the norm the normal day to day, um, you know, uh, working relationship, uh, people, uh, people morph into their familial relationship and, um, it's, you know, I, I feel sorry for the employees that aren't family members in situations. Like that, they, they can't, there's no way that they could go in there and pull an emotional card on an owner and get away with it. But a lot of times, of course, the family members can and do that. So it's important for people to understand because that can really create a culture that can destroy a business if they're not careful, right? Uh, it can not only create a dysfunctional culture, it can just create a culture of non-productivity, um, a tremendous amount of, um, turnover, um, inside, uh, with your employees because they just probably figure, hey, I want to go somewhere else so I don't have to deal with the drama every single day. Uh, so I do think it's important that you, you have a life both inside the business. And outside the business and how are you going to conduct yourselves in both senses and it doesn't mean that you can't have fun and enjoy your life, but certainly there has to be some common sense because you are an extension of the business and its name and its character and integrity and its legacy. And so you want to make sure that you sustain that for its entirety. Yeah, absolutely. Now Vince, I was at a business. Well, it's, it's been a little over over a year now, uh, and the, the owner says to me, you know, I really want my son to someday take over the business and uh. He tells me unfortunately my son sometimes treats me poorly in front of other workers. It's created a real dysfunctional environment. The other day he came in and shouted some things about some things that I did that he thought were unfair on a personal basis and stormed out in front of a few people. Now you can, I mean, everybody was embarrassed. You can imagine how the owner felt the employee son didn't, didn't, you know, he thought he was totally within his rights. But can you imagine if the, if another employee, an unrelated employee tried to pull off something like that? And the other thing is how embarrassing or how difficult would it be for people to respect that son when they see how he treats his father down down the road in the future. So how can people let's let's get into this matter. How can, how can owners of businesses make sure that that kind of thing just does not happen on the workplace? And the answer is setting these policies. So how do they start? How do they develop policies? Yeah, so first of all, um, you wanna first take a look at what type of, you know, company do you really have in front of you, right? So what is the, what is the current culture? What size of company do you have in front of you? uh, how many family members are actually involved with the business, uh, what stage of the business? Um, are we currently at? Are we more in the first generation? Are we further along in the second or whatever? Um, how big is the family members that you, that have, that you have in there? Um, and then you also want to take a look at what is the, what is the real harmony between the family members that you have inside the business also. And are they people that are open to each other or are they fairly close to the vest and secretive? Um, you know, and like we've said before, what kind of culture is in the business, um, you know, and what kind of precedences or policies are really kind of already put in place. So when you start to look at, you know, what you need and when you need it, is you're almost You know, you're, you're, you're looking at where am I at in my business right now and then I think a good thing to do, and this takes this takes time, this is not something that can be completed in 30 or 60 days. This could take a few years to complete. Um, but, and, and sometimes what I suggest to business owners is, let's try one policy and procedure that we put in place, and let's make sure that we're, we're, we're aware of what that policy and procedure is, and then, and then we can kind of build on that based on how quickly that really resonates with everybody else in there. And, and you really just want to talk to the family members and, and really just have a meeting. To talk about here's our values and here's what we're really trying to accomplish, and let's all agree as to how we're going to conduct ourselves both here and outside of the business. And I think that's really important because certainly there could be 2 and maybe 3 generations sitting at that table, uh, that could be 10 to 20 years away from actually running it, but it's important to set those precedences ahead of time. Certainly you want to allow for the younger generations as they take ownership of the business and the and the more senior generations start to move out into the next phase of their lives, if you want to allow them some flexibility to kind of build a culture that's going to be fit to what they have a little bit more than maybe what you had originally. Makes a lot of sense. So what I heard you say was you kind of take stock of where you are and what you, what you currently look like and what you want to look like. Set some, some goals and guidelines, get your bearings, and then start with something like a code of conduct that everybody can adhere to. And uh you know, one thing we hear about in family businesses a lot is it's, it's usually a mistake to bring um children right into the business without having them go out and and work for someone else, at least uh after they've gone to college, for instance. sweep up the floor early on when they don't have any authority, but the issue is often to not put people into authority positions until they've had a chance to go out and work for somebody else and build and and understand what it looks like outside of the family business. What do you think about that advice? I think it's a great way to, um, to do it is to have somebody, uh, whether it's in the industry in which they're going to work inside the business or it's just somewhere else to be out there, um, those are good policies to put in writing, uh, to say, you know, does the, should they, should they work outside and for how long do they need to work somewhere else? And then, you know, you could even go as far as what kind of roles should they experience uh in job uh. A description should they do outside before they come back in. Um, a couple of other ones would be, do we have like, do we have like, um, what happens if, you know, one of your. Children or your nephew, if they want to be promoted by somebody else really wants to say, well, I don't want that, but if you have the policies in place and this person has met those requirements, and either they are or they are not going to be promoted into a different job, um, it also has to do with policies um about um stock and who can own stock and when they can own stock and Um, when they should have to sell the stock and, you know, if you're getting married, then are you going to make sure that you have a prenup, uh, letting them know that, you know, any non-family member does not get to come into the business, or what are those requirements? It doesn't mean that you have to disallow it. It just means you need to talk about it. So if Jim's wife can come in, but Tom's wife doesn't want to, how does that, what is that treatment there and how is that different and Can she own stock and still be a non-owner and things of that nature. So, I think there's a lot of things that people have to make sure um that they take a, a look at. I can drill it down, Bill, even to the fact is, How much of a loan can the business take and what are the policies with loaning and, and banking? Um, can you serve on a board somewhere else and what does that look like? So it can get pretty in depth, uh, of what you're trying to accomplish, but it goes kind of back to what I said originally, just kind of. You got to find out first, where is the business today and what kind of maturity, what kind of size, how many family members are we really looking to talk about, and then you can kind of mold all of this based on who those folks are, and how to best direct them and how they can make really good quality decisions, um, to help them move along in their family business. Time is precious and so are our pets, so time with our pets is extra precious. That's why we started Dutch. Dutch provides 24/7 access to licensed vets with unlimited virtual visits and follow-ups for up to 5 pets. You can message a vet at any time and schedule a video visit the same day. Our vets can even prescribe medication for many ailments, and shipping is always free. With Dutch, you'll get more time with your pets and year-round peace of mind when it comes to their vet care. So I'm, I'm starting to understand why you said close to the beginning this can take a couple of years depending on the size of your business and where you are on your timeline and how many people might be involved either now or in the future generations. This could be very, very, very involved, especially if you, if you've kind of maybe you're a 2nd generation business now and you want to go to 3rd generation and beyond. And of course the number of constituents or family members has now increased substantially as you go from one generation to the next. It could be very, very um interesting and difficult. What are the, I mean, there are giant family businesses out there, Vince, there are huge family businesses out there, and how do they do this? How do they create these types of codes of conduct, if you will, and, and policies? Well, I think they're going to go back to what I uh uh To, to the point of you got to start at square one. And so usually the, the senior owner of the business, it could be the, the one, the one business owner that started the business, is you're gonna want to sit everybody down in the same room and just kind of start talking about what this business is and where it's come from and what your goals were as a business owner when you started it. And then you want to share with your family members what it is you're trying to accomplish, and you're gonna want to ask them their input. I always think it's important to get everybody's input. Um, because one, it makes everyone feel like you are having a contribution and getting everyone's insight as to to what they feel and what they think. And I would go as far as to say put a, put a flip chart up and write down some of those ideas so no one forgets it or have someone write them down. And then you're just going to talk about, say, look at here's the area, so make a list of the policies that you want to develop. Uh, and start with one or two of them and write them out and then walk away from it and then you come back to it and you keep developing that policy until you get it where you want it and then have some other people from the outside look at it if you have an advisory board, um, uh, I know that I serve on a number of those as just kind of a silent person in the back, and sometimes I'll give some insight if they ask, uh, sometimes I don't. Uh, but if they ask, uh, people from the outside to take a look at them, then at that point they can get some additional insight as to say, hey, listen, I think that you're right on track and you're, you should probably put this in place, or, you know what, let's talk about a few other questions that you may want to ask the family and just kind of really fine tune what this really looks like, uh, and then make sure that you finalize it and then you put that in place, you can move on to the next one. Good point. So, um, always get getting everybody's involvement, um, if possible. Now you, how about a situation where families are growing, um, maybe you have several siblings and they're having children and they're getting to the age now where they might be involved, um, do you, uh, do you have like a, a family business manual that goes to anybody who asks, or is this something where you think you have a a policy manual that is available to anybody who's reaching a certain age and asking for a job, or how do you, how do you continue to communicate this to new potential employees for the business? Yeah, that's a great question. Um, and I think the best way to handle that is to start having those conversations with your children, probably, uh, early high school, uh, and to talk to them about the business and what's in place and, and to explain to them, you know, here's kind of what you've done in the business, and here's what has been outlined, uh, as the policies to be able to get into the business. Now, Depending on how large the company is, Bill, it would depend on how many policies that particular business has, but you certainly could put down a summary page uh and talk with your kids about here's some of the key factors it's going to take to get to maybe first base to get into the business. And here's why we did it this way. And you're getting their input, you're explaining that to them, and you might need to have that conversation a few times with them. Um, but now you've got, and you've kind of set the stage and the foundation and the expectations. Uh, and so then it's a lot easier to move forward with it from there to say, well, listen, we have a requirement that you have to work outside the business for 2 years before you can come in. Um, you may have to have at least an associate's degree before you can come in, or maybe you need an actual, a business degree before you can come in. So by explaining that to them early in stage, especially in high school, where it's probably gonna be a little bit, it's gonna resonate with them a little bit more, I believe. Um, I think it's gonna be a lot easier, yeah, I, I think it's gonna be a lot easier just to let it flow out and, you know, treat them like adults and people because that's what they are. I like that. I've got a 3rd generation business, and what I found is that There are a lot of myths that the 3rd generation has about what they thought they saw happen between generation 1 and generation 2. I'll give you a quick example. Um, the, the children think that dad gave the business to their mother and father, um, and that the mother and father should in turn give the business to this third generation when in fact what happened was We were in a very different estate planning type of a scenario way back then. The limits for for being able to transfer business and other assets was very low, and so certain things had to happen in terms of gifts and compensation and compensation. So they mistook the gift for a free gift as opposed to a tax strategy. So, so a lot of times there are myths that perpetuate throughout generations and those need to be busted at some point. As well, so I, I really like what we've talked about today, Vince. What, what tips could you give our listeners as far as just getting started on, on this path? Um, well, I think just, uh, maybe setting down themselves first of all, um, like in some, you know, just in their office or somewhere where they can get some isolated time and just really kind of think about, you know, if you, if you're bringing your family into the business or they're already there, um, what one or two policies would you like to see in place that you think would, would not only increase the communication, the relationship between you and your family, professionally and personally, but would also increase the relationship between the family members and the employees within the business. And I think if you really think about that and, and really challenge yourself and just make it simple, don't get overly complicated about it, then you can start to sketch out, um, and put some policies together and then start bringing them in and talking about them, but it will help you to communicate what it is you're trying to accomplish, and then you all work together as a team, uh, and it gives you, I think, uh, a sense of it, it, it really increases. That sense of collaboration and continuity together that everybody is growing together and moving in the same direction. Love it as usual, great ideas and tips from, uh, from Vince Mastrovito of Promes Partners, and you can, you can call him if you want. I'll give you the office phone number is 616-622-3070 or visit his website, and that's at Prometis that's P R O M E T I S, by the way, P R O M E T I S dash partners. No, I don't think I have that right, Vince. I'm sorry, I'm looking at your LinkedIn contact. What is your website, please? No, no worries. It's uh Promitis, P R O M E T I S Partners, P A R T N E R S dot com. No dash in between there. So Promeuss Partners.com. Vince, thanks once again. Great information. I really enjoyed this conversation and I hope our listeners took a lot of notes as I did. And again, I look forward to the next time we get a chance to speak, Vince. All right, thanks a lot, Bill. I appreciate you having me on. Thank you for listening to Exit Coach Radio.