It’s all relative: How CPAs navigate family businesses

For a CPA working in or with a family business, the family tree may be just as important as the general ledger.

A family business may only hire the best and brightest members of the family, or it may provide a job for every second cousin and in-law. Some promote employees based on merit; others don’t look beyond a common surname when handing out promotions. Some make business decisions based purely on business. Others are heavily influenced by family drama whose origins trace back to things that happened in living rooms—not boardrooms—decades ago.

A good CPA can and must help a family business operate in a professional fashion, said Don Schwerzler, a family business expert and founder of Family Business Institute Inc. in Atlanta.

“The CPA plays a critical role in starting to formalize how that business is being managed,” he said.

Family and like family

Family businesses can offer a level of flexibility and informality that is not always available in other businesses. Diane Maixner, CPA, is a tax specialist with Maixner, Maixner & Co. CPAs in St. Louis. She is married to the son of the firm’s founder, and her husband is a CPA there. The firm also employs her sister-in-law and son. Only one nonrelative works there. It’s no big deal when someone has to deal with a family emergency or obligation, Maixner said.

“If you’re going to a Valentine’s Day event at school or picking up sick kids, we understand,” she said.

That understanding extends to more complex issues with clients who have family businesses, she added.

“Being in an advisory position, and possibly having faced some of the same challenges ourselves, we can be a sounding board for family members and help the client family business to diffuse these tensions,” Maixner said.

The best-run family businesses operate with professional standards and treat nonrelatives with the same consideration as family members, experts agree. They’re transparent and promote employees based on merit rather than bloodline.

That’s the type of environment Shannon Reichelt, CPA, has tried to build as CEO of S. Reichelt and Co., an accounting firm with headquarters in Holyoke, Mass. The firm employs 10 people, including Reichelt’s CPA husband and a pair of sisters.

“Everybody’s included, no matter what,” she said. “It’s just inherent in our DNA of how we operate. There’s really no one who feels like they’re off in a silo.”

Outside looking in

Flexibility can descend into chaos at poorly run family businesses. Practical matters may be addressed in an emotional fashion, such as a son-in-law getting a raise to ensure a comfortable lifestyle for the owner’s daughter, Schwerzler said. Decisions may be made based on what’s considered best for family members rather than what’s best for the business.

“This drives professional service providers crazy—the CPAs, the lawyers, the financial planners,” Schwerzler said. “They’re all taught to think syllogistically, logically. And family businesses aren’t logical, many times.”

CPAs working from outside the organization sometimes find themselves caught in the middle between feuding family members, said Darlene Leonard, CPA, managing partner with Smith Leonard Accountants & Consultants in High Point, N.C.

As an outside adviser, “sometimes you need to tell them what they need to hear, not what they want to hear, and yet do it in such a way that they don’t get offended or fire you in the process,” she said. “You try to stay in the neutral territory, but that can be difficult.”

Soft skills can be crucial in such a situation, according to James W. Lea, Ph.D., a Chapel Hill, N.C.-based independent adviser to family-owned companies. CPAs must learn to read people and maneuver through sometimes complex family dynamics. Doing so will help them provide the best service, he said—and help guarantee their ongoing employment.

Family companies “want to have financial security now and in the future for the family,” Lea said. “But hidden behind that is oftentimes some family values and standards and relationship considerations that aren’t out on the table, but that really affect the way the family company deals with people, be they family members or others. A CPA working in a family firm—either directly or by retainer with his or her own firm—really has to have a feel for that.”

Disorder can take many forms, from lax standards about showing up for work to secrecy that puts the business at risk of running afoul of the law, he said. Reasons for subterfuge may include distrust of outsiders or ego issues in executives who don’t want to expose their flaws.

“I think the CPA has to expect and demand, in as gentle a way as possible, that the family company deliver on accountability and tell the truth,” Lea said.

CPAs outside the family circle should take deliberate steps to make connections with multiple generations and family members inside and outside of the business, Schwerzler said. In his consulting work, he likes to meet individually with each family member involved in the business, as well as with spouses who are not directly involved, and then with each couple together, recognizing that business decisions in such cases are family decisions.

“That enables me to become an advocate for each of the different groups involved in the business, while at the same time being an ombudsman for the business,” he said.

Such meetings help family members feel connected to a CPA in ways they may not otherwise, Schwerzler said.

“If there’s not a relationship that has developed, when the kids take over the business, they get rid of Dad’s CPA, and they bring in their own,” he said. “The best way for a CPA to maintain a relationship with a generational family business is to make sure they’re dealing with both generations.”

Meet the partners

Working for a family business offers CPAs a unique set of opportunities and challenges. Accountants and family businesses should size up each other carefully before tying the knot, Lea said.

“This is a critical relationship for both the professional and the company, and it needs to be explored and sorted out and tweaked very carefully before commitments are made on both sides,” he said.

Eddie Huffman is a freelance writer based in Greensboro, N.C. To comment on this story, contact Chris Baysden, senior manager of newsletters at the AICPA.