I am the third-generation owner of a family business. The company is struggling now, and I can no longer afford to pay my parents who stopped working 11 years ago but still draw paychecks. Though the company has no legal obligation to pay them, my dad is threatening litigation. I made them an offer that will be burdensome for me to pay, but I’ll do it if it keeps the peace. My dilemma: When people come into the business and ask about my parents — or say: “What great people!” — how should I respond, considering they have put me in financial and emotional peril?
Here’s what I know about family businesses: As a young man, my grandfather opened a tiny sporting goods shop and worked ferociously to make a go of it. Eventually, his sons joined him and helped grow the business. When he retired for health reasons, they kept paying him from the income of the business, as they should have. There would have been no income without my grandfather!
So, while I’m sorry for your troubles, I don’t fully understand them. When parents turn over a prime asset (like a business) to their children, rather than selling it to the highest bidder, they may still need compensation to support themselves. You must agree. Why else have you paid them for 11 years?
Family business members can also be lax about formalizing agreements. I assume your parents gave you the company in exchange for the continued paychecks. But for how long? Hitting a rough patch, as you have, may be an argument for belt-tightening or innovation, but not for stopping payments that your parents rely on.
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