We are family: top tips for running your family business

Written by
Richard Morris

06 Oct 2016

06 Oct 2016 • by Richard Morris

In the UK, for example, family companies account for almost 40% of private sector employment, and create 25% of the country’s GDP. And in the US, the ties are even stronger – 80% of all businesses are family enterprises, and they generate 60% of the country’s employment. In Asia’s emerging markets family businesses are seen as a major driver of economic development by being better providers of public goods than local governments. The list goes on.

But that doesn’t mean doing business with your nearest and dearest is always easy. While running a family business certainly comes with its own benefits, it also comes with its own potential problems- which can have considerably greater consequences than an argument over whose turn it is to do the washing up. So what are the key dos and don’ts of keeping a business in the family?

Do you think about career succession?

According to a study from Concordia University in Canada, just 30% of family businesses survive through to the second generation, and only 12% make it to the third. So if you want to improve the chances of your legacy being passed down for years to come, you need to take a proactive approach. Get your successors involved from an early age, so they’re more likely to become invested – and not just financially – when the time comes.

When you have an emotional stake in the continuation of your business as a family-run enterprise, it can be all too easy to make biased decisions. But giving family members preferential treatment must be avoided at all costs.   Regardless of whether they are family or not,  every one of your employees deserves the same chances for promotions, pay rises, holiday time and flexible working options – or you risk causing serious resentment and higher staff turnover. 

Honesty and open communication

Of course, there will be times when your daughter deserves a raise, or when your cousin’s son is genuinely the best candidate for that promotion. Don’t be tempted to sweep these things under the carpet – be honest and open with your entire workforce about the requirements of positions, and about each worker’s performance in relation to those requirements. It might seem easier at the time to avoid mentioning that the person you recently hired is related to you, but if it comes out later, you run the risk of looking deceitful.


Don't blur the lines

If you were running a business without any family associations, you’d take great care to keep your personal assets and expenses separate from your business ones – and in a family business, it’s important to do the same.   Before you let any family members borrow company vehicles or charge certain expenses to the business, ask yourself: would I happily allow a non-related employee to do the same thing?

The same hypothetical approach can be applied the other way. When it comes to making business decisions about normal employees, you hopefully do your best to keep your personal histories out of the picture – so don’t let family squabbles bubble over into your working life! 

Look for non-family input

When a team of managers – or even just two partners – have been raised by the same people to have the same values, and often have many overlapping experiences, their perspectives can often be  too closely aligned. In many respects, it’s great when people working together share the same morals and goals. But that can also mean they have the same blind spots and weaknesses in judgement.

Be aware of the kinds of biases, assumptions and traits that you and your family members probably share, and  take  advice  from your non-related employees and your customers seriously – or you risk letting  a shared group mentality lead you away from the best course of action.

Where it’s appropriate,  try to hire or promote a few non-family members into senior positions. As well as assuring the rest of your workforce that they’re working for a business with an even playing field, the fresh perspectives of ‘outsiders’ could be invaluable – and it might lead to a reduction in emotionally-charged disputes between an all-family management team.

Dont make agreements in good faith

It might sound obvious, but every agreement should be formalised – after all, even marriages have a contract. You might trust your family members more than you trust yourself, but job roles, supplier contracts, operating procedures and the allocation of shares are all open to interpretation.

It’s not only a sensible way of safeguarding your business against potential disputes, conflicts and changes of heart: it’s also a way to make sure that both sides fully understand each other and how they expect each other to proceed. Depending on your family’s values, you might meet some resistance when you start to suggest written agreements, but it shouldn’t ever be a deal-breaker – this is business, after all.