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5 Mistakes to Avoid With Your Family Business

Posted by attorney Robin Gronsky

If you have a family business and your relatives are working in your business, you should recognize the possibility that the family part of “family business" may create its own problems.

Problem #1: You don’t treat your family members the same as non-family members. There is nothing more discouraging to employees than to watch relatives of the boss get rewarded beyond their contributions while non-family member employees are ignored when it comes time for raises and promotions. It causes dissatisfaction and leads to disharmony. Likewise, if all staff members do not get raises or must take pay cuts, your family members must share the pain. The smaller the business, the more each employee must get along well with everyone else. If your relative is getting treated better because he/she is your relative, it is possible that your other staff members may leave you due to lack of opportunity.

Problem #2: Family issues bleed into business time. You must be able to compartmentalize personal matters from business concerns. If you and your spouse are fighting at home, that fight cannot be continued at the business, especially if you have non-family members working for you. During normal business hours, you must act in a professional manner with everyone, including family, so that the business does not suffer from outside distractions. It’s hard enough running a business on a day-to-day basis without having your family issues interfere with top productivity.

Problem #3: You have no plan for the transition to the next generation of family. This issue is the one on which most family business struggle. Either the founder of the business does not want to give up control or the next generation is not trusted by the founder to actually continue the business in a successful manner. If you don’t trust your children/nieces/nephews to continue the business, they shouldn’t be working for you. Have a family meeting to discuss what your vision for the future is and ask each family member to contribute to the discussion with what their vision for the company is. Everyone needs to be on the same page for the business to continue with the next generation in control.

Problem #4: You do not have an estate plan. Do you have a will? A durable power of attorney? A health care proxy? What would happen to your business if you had a heart attack tomorrow? Would everyone in the business, including your family members, be able to carry on without you? Who would own your business if you died suddenly? As unpleasant as you think making these kinds of arrangements are, they will actually be to your benefit. Estate planning helps clarify your thoughts and forces you to make plans. It is much easier to go forward when you have a roadmap. It also lowers the anxiety level for the family members who are working in the business when they know what their future will be.

Problem #5: Your family members quarrel about business decisions. As the head of the business, you need to establish a method for discussing business decisions and how disagreements will be resolved. Whatever the dynamics of your family are outside of the business setting, you cannot allow your employees, either family or non-family to squabble about decisions after the decisions are made. You know you would not permit it from non-family employees, so you cannot allow your family members to ignore your authority once a decision is made.

Family businesses can be more difficult to run than non-family businesses because of the additional personal dynamics that can interfere with the successful running of your enterprise. Be aware of when family issues are impacting your business so that you can solve the special problems that arise in family businesses.

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