Prevent Problems In A Family-Owned Business

Every business encounters problems, but things may go poorly when family, business, money, and egos mix. Maintaining family relationships often involves empathy and forgiveness, but those qualities may not result in an effective and efficient money-making venture. Here are some ideas for preventing problems involving family members and business ownership as shared by a partnership dispute lawyer.

Family-owned businesses are essential to the US economy. According to the Conway Center for Family Business, family-owned businesses:

  • Create 64% of the country’s gross domestic product, worth about $12.9 trillion
  • Employ 62% percent of the country’s workers
  • Account for 78% of new job creation

These businesses and the country benefit when they’re well-run.

Don’t Pad The Payroll With Non-Working Family Members

Everyone must do something in a start-up or family company, but conflicts can arise. Everyone should have clear roles and responsibilities as our friends at Focus Law LA can attest. Everyone needs a title, function, and compensation. Family and non-family members should face the same standards when it comes time for performance reviews.

There Should Be One Class Of Employees

There shouldn’t be first-class family members, and everyone else is second-class. Family members shouldn’t receive special treatment, which sets a bad example and will demotivate and frustrate non-family members. Showing favoritism, especially with promotions, pay, and benefits, will send good, non-related employees out the door.

Don’t Abuse Family Members Either

Some business owners may go too far in showing that family members won’t get special treatment. Instead, they may get especially bad treatment. All employees, no matter their bloodlines, should be treated fairly and consistently.

Communicate Honestly And Openly

If friends or family members work for you, don’t make it a secret. The facts will come out, and if you’re not ahead of them, it’ll look like you’re trying to hide them. Effective communication between management and staff is critical to all companies, including family-owned ones.

There’s A Difference Between Family And Business Decisions

Don’t use company resources to benefit family members personally. Vacations shouldn’t be used as business expenses. Family members shouldn’t use company vehicles for personal purposes unless everyone else can. Do you want a professional organization or a mom-and-pop one? If you want to be professional, people must be managed that way.

Create Firm Boundaries Between Family And Business, Especially If Spouses Own It

To keep your sanity and preserve your marriage, establish boundaries between your family and business. This is a balancing act on many levels. You need a system to keep business and family in different compartments as much as possible. Working all the time won’t do your business or marriage any good.

Use A Family Council

A family council is made of members who may be owners but not employees. They meet regularly to strategically plan the business over the next one to ten years. The less functional the family, the smaller the group should be. Reevaluate the council every two years to see if you want to expand the group and decide who should join.

The council shouldn’t micromanage the business. Their job is to address family issues or concerns related to the company. A family member may sacrifice their income to keep the business going during a downturn. The council could consider how to compensate this person in the future.

A family council could put together long-term plans:

  • Individuals could get help with their professional goals
  • They could set overall family goals and decide what resources are needed to reach them
  • Business plans could address ownership, management control, family involvement in the company, and its long-term strategic direction

This structure may help more family-owned businesses help resolve business/family conflicts.

If you have a family-run business, an attorney can help you navigate your company’s two worlds and run it as professionally as possible.