Five Things to Consider Before Going into Business with Family

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For many people who are considering starting a business, it is only natural to consider opening a business with family members. Many family businesses are very successful and grow beyond the local markets into major corporations in national and international markets. On the other hand, there are many family businesses that fail quickly due to miscommunication and mismanagement. For a family business to be successful, the family members who are involved with the business as owners need to meet and discuss several issues as owners and professionals before moving forward with opening the business.

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Division of Labor

Everyone wants to be the boss, but the decision of who is going to be in charge in a family business is more difficult particularly when it is siblings or cousins running the business. Unless there is clear-cut boss, it will either fall to the oldest partner or there will be some contention about who is in charge. One way to manage this potentially sticky issue is to have an owners’ meeting and formally nominate and vote who will be the boss. However, that person must realize that they are still responsible to the partners and isn’t necessarily the end-all-be-all as far as being the decision maker. Starting a business is hard work and all the partners, the boss included, will find themselves doing a variety of things, some of which may not be pleasant but are necessary for the success of the business.

Employment Practices for Family Members

Many family business owners are put in an uncomfortable position when it comes to employment practices. One of the major issues that needs to be discussed by the owners is whether or not other family members will be hired and in what capacity will they work. In many family businesses, it is the expectation of other family members that their children will be hired to work in the family business without question. Business owners need to consider what is in the best interest for the company first and family dynamics second. If the owners decide to let family work for them, they must set some strict ground rules and expectations, particularly that family members are still employees and will be treated as such. It is a good idea to have an interviewer with no vested interest in who gets hired interview potential family employees and make a judgment on whether or not that person will be a good worker. A very fast way to ruin a business is to have a large number of people on the payroll that do nothing but be related to someone.

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Financial Responsibility

Owners of a family business, like owners of any business, should share the financial responsibility for the business if they expect to share in the profits. While it is tempting to make all commitments on a verbal, friendly level, it is much better for everyone involved if financial and other responsibilities are written out in a formal contract environment. This practice also applies to positions within the company, job responsibilities, profit share, and a host of other issues that affect the running of a business. Unfortunately, in business, you simply can’t put your trust in family bonds and expect your business to be successful for very long. All the owners are ultimately responsible for the success or the failure of the business. If someone isn’t willing to take on that responsibility, they should strongly consider relinquishing their position as an owner of the business.

Conflict Management

All families have conflict which can cause some tension; however, when that conflict is brought into a business, it can have significant repercussions for the business. There must be a protocol in place for handling conflict both regarding the business and other family issues. Owners must remember to leave their personal business at the door, which can be very difficult if they happen to be in conflict with another owner, another owner’s family, or an employee who is a family member. Family businesses can be a hotbed of entangling alliances between family members which do nothing but harm the potential for growth and success of the business. Additionally, uninvolved family members can also attempt to get involved, giving unwanted opinions and trying to push themselves into the business. While it’s difficult, business must be business and family is family and the two should not cross paths. Should the conflict grow beyond the ability for the owners to control, an outside moderator should be brought in to help manage the conflict and allow everyone get on with business.

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Profit Distribution

People go into business for the same reason – to make a profit. However, the first year may not show much of a profit for the owners. There must be a contract, in writing, about how profits will be distributed and when they will be distributed. As the business begins to grow and become a self-sustaining entity, there must be a method in place to repay each owner’s investment as well as part of the business’ profit. Again, if everything is put into writing, there is no question about how profits are spent and distributed. One partner should be responsible for all the accounting activities of the business so that it is easier to keep detailed records of expenses and profits. A family business is, foremost, a business and should be treated as such by all those involved with it.

Family businesses are the backbone of many local economies. However, when the decision is made to open a family business, everyone who is involved must understand that it is a business first. Owners need to act like owners, not family members, when they are representing the business to the public and business associations. No one wants to be in the middle of a family conflict, particularly those who are outsiders that are only involved for business purposes. For those who can keep their business life and family life separate, they can look forward to a long, profitable enterprise that is beneficial to all those involved with it.

Image source: Free Digital Photos

Isaac Morris is a professional blogger that provides tips and information on franchise opportunities and investments. He writes for, the place to find franchise opportunities online.

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