Ken Fakler gives tips on how to operate a family business.
Ken Fakler presented at the Emery County Business Chamber Economic Summit. He spoke on family owned and operated businesses. His business, started by his father and operated by he and his brother was Fakler Tire. The business was split-up in a creative way. Twelve percent was owned by Ken, 12 percent by his brother and 12 percent by each of the spouses and the remainder 52 percent was held by his father. His father thought the spouses would have more buy in to the business if they were equal owners with their husbands. Any ideas or changes in how business was done was always approved by everyone involved. A divorce would really goof up the business model, but his father built into the operating document a clause that said if you choose to leave the marriage or business then you would be paid out over a period of 10 years.
The owners all signed the operating documents of the business saying they agreed with it. They knew the rules going in and adhered to those rules. If you decide to get out, then it's nine years down the road before you're paid the value of your shares. Fakler said these rules helped their business grow and develop and become a good place to work. The rules were a protection for the business. Years down the road, Bridgestone wanted to buy out the Fakler Tire stores and when they did, they gave their employees a 10 percent raise to keep them on board during the change. Fakler said if they would have had grandsons, then perhaps they might have carried on the business, but the grand-daughters didn't like tires. They knew how to change tires, drive a stick shift and other aspects of the tire business, but they didn't want to carry it on.
"We were able to build a business even when other competitors and businesses were coming into Utah County. My brother fired me once, but my Dad said he couldn't because Dad still owned 52 percent of the company. He told us to sit and work it out. We stayed up until 3 a.m. and we worked it out. He said if you don't work it out, I will sell out and fire both of you. We made a few changes, but we worked it out. Dad, was a simple man, he was kicked out of high school. He was a simple man, but he worked out these bylaws and had them legalized. These bylaws put everyone in the same boat, rowing together the same way. One area that causes the most problems in a family business is the older sibling sometimes likes to tell the younger one what to do. Fakler said there are becoming more and more women entrepreneurs and he encourages that. His family was from Germany and tradition had it that the oldest son took care of the family. His dad was the second son so he didn't like that.
At Fakler you worked 55 hours a week, if you worked over that you donated your time. If you worked under that, it was recorded in the black book and you were docked for it. You were give 15 days vacation a year, if you went over that you were docked. If you took under that, you donated it to the business. "My wife was a teacher and she was always wondering why I didn't get any days off. My brother liked to take off early. My wife always asked why I couldn't come home early. Dad felt like no matter how long you'd been in the business you were given the same compensation. We started out at $25,000 a year, poverty wages, it was raised to $35,000 before he died. But, the business gave good bonuses when it made money. Seventy percent of the income from the business was distributed among the employees. Dad, told us we could either make a profit or live in poverty. Those kind of incentives force you to get up at five in the morning and get down to the business. We give good solid bonuses which helps us to make and keep good employees. If they don't want to perform, chances are they will quit. If a family member wants to leave, they will receive the book value of the business when they left, but they won't receive it for nine years down the road. It locks you into the family business. If you want to leave, you won't get rich by leaving the family business. You will want to stay in until the business is sold or passed on to heirs.
Some of the rules we used with our business won't apply to your business. But, do it, get a set of rules and go over them.
Fakler said you can legally give a business away to avoid estate taxes, he recommended estate planning be done so when the owners die you won't have to pay any estate taxes which can kill a business. Grandpa Fakler really helped out his grandchildren with college funds. "You can structure your family business to create enough wealth to do all this. Structure it so it doesn't end in a feud. I have seen it over and over where a feud breaks up a family business. You don't want to go to court or the business will die. Family feuds are worse than partnership feuds. It will break the business. That's the last thing you want to have happen. You can see the wisdom in having a plan. You have to divide the assets so it's fair. You also need to figure out how to compensate those not involved in the family business. It's a limited partnership. My dad set everything up with a personal assets side and a business side. You can shift assets. The corporation leased the building and the land from the family trust and my dad set the price of the lease. The stocks and bonds were on the personal side.
"Dad could fire us brothers if we didn't get along. Dad didn't want any feuds.
"If you structure things then you can make a family business work. We gave liberal commissions and bonuses and we didn't have people stealing from the business. It's kind of like stealing from yourself.
Fakler encouraged business owners to get an accountant because it can get complicated to do things right. He also encouraged them to have regular meetings to keep everyone on the same page. He would take time each week before work and meet his brother for breakfast to talk over business.
"You need to be available to your customers, if they can't talk to you. You will lose business." said Fakler.