Who's Your Cash Custodian?

Gerry Murak

Periodically, all family businesses need to make an objective evaluation of their key financial metrics and the person who is responsible for them. Typically, a controller's responsibilities with a family owned business cannot be found in any textbook.

Financial control generally follows one of the following paths:
1. Back off—"It's my company and my checkbook."
2. Honey Do or Gene Pool—"Who else can you trust?"
3. Undersized—"Just give my accountant the shoeboxes."
4. Survivor—"He's been here since day one."
5. Defector—"She must be good; she used to work for my accountant."
6. Teflon—"He doesn't have a clue what it takes to run this business."
7. Big League—"He got tired of working for the big corporation."
8. Tag Team—"If one is good, two are better."
9. Jumping Ship—"I knew she was the problem." Let's take a closer look.

Back off. There is no question about who is in control here. This family business owner tries to do it all, including keeping the books. No one else is trusted with the financial information, including the outside accountant. It is a case of "my way or the highway," even if "my way" is going off the edge of a cliff.

Honey Do or Gene Pool. This family business owner often shrugs off financial control by saying, "I don't have time for that stuff." Such owners cite numerous examples of why they can only trust their spouse, son or daughter. This type of controller's education or outside experience usually does not qualify him/her for the position. It is important to watch for the "lucky gene pool"—the son or daughter fresh out of school with no outside experience. Sons or daughters who attempt to improve financial controls in the company risk straining their relationship with the parent running the business, both at home as well as at work. All too often, members of the lucky gene pool can be swayed by the promise of another perk from Dad or Mom.

Undersized. Family businesses often expand their financial control titles faster than the knowledge or experience of the person in the job merit. When family businesses experience rapid growth, business systems and manager skill sets often lag behind. At one client's company, the controller was asked for a cash-flow report and responded, "What's that?" At another company, the vice president of finance wrote payroll checks in longhand!

Survivor. Owners often have a confidant at the business who is not a family member. Typically, this employee joined the company early in its history. The confidant has been there through the ups and downs, and the owner has faith in the person. The confidant typically has worn many hats. Even when the business is in a crisis, the owner is very reluctant to break this bond. "After all, he's part of the family," the owner might say. "The bank is used to working with him." These survivors often have titles and compensation that exceed their capability.

Defector. This scenario arises when a member of the family business' accounting firm has come to know the business. A working relationship develops between the family business owner and the outside accountant. This comfort level leads the family to disclose more information to this person than to other internal or external contacts. Eventually, the family hires the accountant as a controller. Sometimes this situation works out well. Other times, this may be the accountant's first experience outside of public accounting, and he or she may lack hands-on business experience in managerial accounting, such as costing. An intervention strategy, coupled with coaching for such a controller, can often yield significant benefits.

Teflon. It is not uncommon, when a family business is in need of a turnaround, to find an owner who does not understand how to read financial reports and act on them. The "Teflon" here refers to the owner, who thinks, "I give the controller anything she asks for, and I get back all these reports. What good are they?" Although the controller may have the right skills, knowledge and ability, the owner washes his/her hands of any accountability and lets the controller take the heat. A clear understanding of the owner's own specific strengths and weaknesses is essential to providing the necessary direction. Establishing clear responsibilities for the owner and the controller, and holding them accountable for their actions, are very important steps.

Big League. In this scenario, the controller comes to work for the family business with a wealth of knowledge and experience from his/her tenure at a major corporation. This type of controller is usually brought on board during a stage of significant growth, when a well-intentioned owner sets out to " professionalize" the business. This situation can sour if the controller has difficulty making the transition to a smaller organization, which typically has significantly fewer resources.

Tag Team. This structure is often an outgrowth of the Big League scenario. When the controller from the big corporation is promoted to vice president of finance at the family business, a new controller is hired. This may seem logical, but if this new structure is implemented prematurely, the family business may be unable to carry the added salary burden.

Jumping Ship. "How can my controller wind up with such a great job at another company when we have so much to offer?" a genuinely bewildered owner may ask. Often this scenario results when a business withholds information from the controller or pushes him or her into questionable accounting practices.

Finding a good controller requires asking certain questions and working through some complex issues.

A central question should be: Is the person qualified for the controller's position? Good communication and people skills, along with a high degree of technical ability, are crucial to the financial management of a family business.

In deciding what role the controller will have, the family business must decide who is really in control. Who has all the facts and knows how to use them to develop a detailed plan of action for the future? Are family and business issues kept separate? A good way to answer these questions is through family councils or advisory boards, which can be used as forums to educate the family about the power of shared information and proper financial control.

Gerry Murak, MBA, PHR, of Murak & Associates, LLC, is a consultant, executive coach, speaker and author of the upcoming book, Straight Line into the Turn. His website is www.murak.com.