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Report on Business Family businesses outperform their peers, if they avoid minefields

When Brad Tindall became president of Great Little Box Co., started by his father-in-law Robert Meggy in 1982, it was after years of building his financial and operating experience both inside and outside the business.

Mr. Tindall and his wife, Christine, both had worked for the family business briefly after university before taking jobs outside the company. His wife, who is now the vice-president of human resources, rejoined the family business in 2007, and Mr. Tindall returned in 2010 as vice-president of finance and then chief operating officer before being promoted to president in November of 2015.

For the Richmond, B.C.-based box and packaging company, which has about 300 employees, establishing an open succession plan ahead of Mr. Tindall’s promotion was important for the family and the employees.

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“Clarity around succession is very important," says Mr. Tindall. “Regardless if everyone likes it or not, at least it’s on the table and everyone knows what’s coming.”

Brad Tindall, president, Great Little Box Co.

In the absence of a clear plan, employees at a family business might make assumptions leading to rumours and speculation, says Mr. Tindall, whose father-in-law Mr. Meggy is still active in the business as the CEO. Mr. Tindall’s mother-in-law was also active in the business until last year, and his wife’s uncle handles the in-house software programming.

Managing the hiring and promotion of relatives is just one of the challenges facing family businesses. There are also payroll and tax implications, such as employment insurance exceptions and recent changes to income-splitting rules, and the maintenance of a healthy balance between personal and professional lives at work and home.

Benefits and drawbacks of hiring family

Running a business with family members can be a blessing or a curse. The worst-case scenarios often make headlines, such as the recent lawsuit filed by Magna International Inc. founder Frank Stronach against his daughter Belinda, alleging she froze him out of the business he built and mismanaged the family fortune. Family business feuds also make for great Hollywood dramas, including the recent HBO show Succession about a media mogul and his power-hungry children, to name just one.

Still, studies show family-run businesses are often more profitable, generating higher revenue and earnings. Many family businesses succeed because relatives are working together toward a common purpose, says David Simpson, head of the Business Families Centre at the University of Western Ontario’s Ivey Business School in London, Ont.

Bob Meggy is chief executive officer of the Great Little Box Co., based in Richmond, B.C.

DARRYL DYCK/The Globe and Mail

“As employees, family members are often the most concerned about protecting the family legacy and will go to great lengths to protect the family’s interest,” says Mr. Simpson. “Ensuring we don’t let down our brothers and sisters and parents is a tremendous motivator, and when families are aligned in business it can be unbeatable structure.”

Problems can arise, however, when personal issues play out in the workplace, or work issues dominate dinner-table conversation. It’s up to the family members to manage their personal and professional relationships, both inside and outside the office.

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Mr. Tindall sees mostly advantages to working with family members in his company.

“One of the benefits that I enjoy most is that there is no disconnect between my work life and my family life. I never feel that I have to sacrifice one for the other, and we all get to share in the company’s successes and support each other through the challenging times,” he says.

His young children also think it’s cool their parents work with their grandparents. “Having the family support and seeing your children show an interest in your work turns it into more than just a career. You know that you are building something for both present and future generations to share and nurture together, which is much more powerful,” he says.

Tax and payroll issues

Employing family members brings compensation implications, including changes that took effect in 2018 concerning income splitting. In the past, business owners could “sprinkle” income to family members in lower tax brackets through dividends as a way to lower the family’s overall tax bill. New federal government rules limit this practice for family members who aren’t considered active in the business.

Today, income splitting is allowed only for family members who can prove they’re active in the company, which means contributing an average of 20 hours a week throughout the year, or in any five prior years.

“You can pay family members, but they have to provide services, and the skill set has to be there,” says Gabrielle Loren, partner for business development at the B.C.-based accounting firm Loren Nancke Chartered Professional Accountants, who has employed her own children in her business in the past.

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She recommends business owners and family members track their time, similar to regular employees, and keep a detailed job description in case Canada Revenue Agency asks for proof they’ve been employed.

Ms. Loren says business owners also have to pay family members regularly, such as every two weeks, and not, for example, a lump sum at the end of the year. Regular payroll remittances must also be made.

Business owners also often make the mistake of deducting employment insurance (EI) for family members when they may not be covered and able to receive benefits, such as during a pregnancy. The rules are based on the number of shares the family member owns in the business and the relationship with the business owner.

Dan Kelly, president of the Canadian Federation of Independent Business, suggests business owners who employ family members seek a ruling from Service Canada on whether the person is eligible for EI benefits. It is possible for business owners to get a refund for up to three years of any premiums paid by mistake.

Regardless of the potential pitfalls and additional hurdles of hiring and working with family, these kinds businesses perform well.

“When family companies work well," Mr. Kelly says, "it can be a thing of beauty.”

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