The tumultuous events of 2020 have had a profound impact on family businesses across the country. With many companies furloughing staff, applying for government loans and instituting remote work arrangements, the year was a true test for business owners, their families and employees.

If there is a silver lining to 2020, it is that many families learned valuable lessons, which can be applied to their businesses in 2021. Here are five “New Year’s resolutions” that business-owning families may wish to consider.

1. Reflect on family values

Many families drew closer together to confront the challenges of 2020. At the same time, the social and political issues that surfaced over the past year divided some families. The many dramatic events  caused family business owners to reflect on their own lives, their businesses and the greater meaning of it all.

Consider convening the family (virtually, if it’s not safe or convenient to meet in person) to discuss everyone’s experiences over the year, with the goal of reconfirming or reexamining shared family values and how those values are cultivated in the family business.

Take this opportunity to enhance or develop more formal guidelines that govern how your family members participate in, receive information about, and provide input on the business.

• Create a family mission statement that outlines the family's values and your shared vision for the business.
• Define roles within the family business and educate family members about those roles.
• Schedule periodic family meetings or retreats to share information on the business.
• If you don’t already have a family council, consider creating one to provide a forum for discussing topics related to the family’s ownership of the business.

2. Stress-test your board of directors

Amid the global pandemic, many family businesses had to make significant corporate decisions swiftly, based on limited and rapidly changing information about the coronavirus and the government’s response. Having a strong board of directors is critical to navigating a global crisis effectively. Consider these tips for evaluating and strengthening your board in the new year:

• Ensure that your board includes a good balance of directors who are members of the company’s senior management team, directors who represent the family’s interests and values, and independent directors who do not have a link to the family or management.
• Inform your family members about the qualifications to become a board member and the roles and responsibilities of the board.
• Spend time organizing board meeting agendas to make meetings as productive and efficient as possible. Establish guidelines for what items and issues are relevant to bring before the board and what is better addressed by management alone.
• Give management team members the opportunity to make presentations to the board. This will help management understand what is important to the board and will also help the board identify junior team members who might be groomed for future leadership roles.
• If you do not have a formal board of directors, consider as a first step establishing a board of advisers who can provide an objective, experienced viewpoint but do not have fiduciary duties.

3. Refocus on employees

The pandemic is likely to continue to affect employees for at least the first half of 2021, so any opportunity to create additional stability and transparency in your business will no doubt be well received. Consider adopting or enhancing formal employment policies that provide family and non-family employees with clear guidelines on:

• Qualifications to work in the business.
• Expectations regarding entry-level positions and career path opportunities. 
• Roles, responsibilities and job descriptions for key management positions.
• Performance review criteria.

Doing so will help to clarify that family members are hired because of their qualifications rather than because of their last name.

Also consider providing additional incentives for non-family employees to remain with the business over the long term, such as:

• Entering into written employment agreements with certain key employees.
• Providing equity or other performance-based awards (for example, stock appreciation rights, phantom stock grants, long-term performance incentives).
• Establishing an employee stock ownership program (ESOP) or a profit-sharing plan.

4. Follow the cash flow

As companies adapt to a changing social and economic landscape, many business owners are taking a fresh look at the cash flow that their business is generating and where that cash is being put to use.

If your business is expecting a prolonged downturn that may require you to curtail or postpone distributions to shareholders, evaluate the impact this may have on family members who depend on these distributions for their lifestyle and long-term financial goals. A dividend recapitalization transaction, in which the company takes out a loan and uses the proceeds to pay a one-time dividend to shareholders, may be a beneficial strategy.

It may be time to revisit your current estate plan, depending upon what trusts hold shares of the business and who benefits from them.

If your business has experienced an unexpected upturn this year, consider conducting a risk-adjusted return analysis to help determine the best use of excess cash the company is generating, including reinvesting the cash back into the business, paying out additional dividends to shareholders or investing in a new business venture as a family.

5. Refresh your business valuation

The economic downturn of 2020 had a meaningful impact on company performance for many family businesses. Some saw a significant drop in sales and profitability, while others had their best year ever. Consider updating your business valuation, either using your in-house finance team or engaging a valuation firm to conduct a formal appraisal.

If your business has increased significantly in value this year, opportunities to evaluate include:

• Selling a minority stake in the business in order to generate some liquidity for you and your family and diversify your wealth.
• Making strategic acquisitions (for example, acquiring a competitor) if you believe you will be negotiating from a position of relative strength.
• Exploring a sale of the business to create liquidity in order to establish a family enterprise and invest in other entrepreneurial ventures with higher potential returns.

If your business has decreased significantly in value this year, opportunities to evaluate include:

• Gifting or otherwise transferring shares out of your estate to your children (or to trusts for their benefit).
• Buying back the shares of shareholders who have expressed an interest in exiting the business.

In addition to vowing to exercise more often, consider these New Year’s resolutions as a way to apply the lessons learned from a difficult year. Head into 2021 with the goal of strengthening your business in a way that will benefit your family, your shareholders and your employees.

Eric Czepyha is director of business services at Northern Trust.