"A close-knit family may find itself in unintended or unfavorable consequences for all."

It’s Not Just Business, It’s Family.

By Matthew P. Bachochin and Brianna L. Golan

It is hard enough to run any business, but family businesses are uniquely challenging. Everyone knows how complicated family relationships are and anyone who has sat at a Thanksgiving table has seen those complications play out in the most awkward ways possible. Now imagine that the livelihoods of everyone at that table, including the livelihoods of future generations, and, in most cases, the family legacy, hinge on that crowd making sound business decisions.

As two people who have worked (or are still working) for our family businesses, we get it. We have experience not only counseling clients in family business but also personal experience working for family, and personal experience about making the decision to stop working for family.

Clients operating family businesses (and closely-held businesses, for that matter) tell us that this “insider’s perspective” coupled with our firm’s extensive business and legal experience benefits not only the current business, but the next generation’s business. Here are some tips about surviving and thriving in family businesses.

Document Everything

It’s not insulting, it’s prudent (and complimentary, really) to insist that the nature of the business relationship – which is separate and distinct from any family relationship – is clearly defined. Documentation must be done at the beginning when everyone is working together and playing nice. Otherwise, a close-knit family may find itself at the mercy of the Business Corporations Act or similar statute that may result in unintended or unfavorable consequences for all. Moreover, if litigation should occur, the fight may be over what “oral contracts” or other agreements exist. This pits father against son, or sister against sister. That is not good for business, not good for family, and just ugly.

Plan for the Future

The entire business can collapse if the owners cannot effectively work together across multiple generations. All family businesses must have a plan that provides a smooth transition to the next generation, provides security and comfort to the current generation, allows for future growth of the company, and maintains some amount of family harmony. Communication is key. If Mom won’t share key aspects of the business, Daughter is going to be at a loss once Mom hands over the reins.

Remember That It’s Personal, but Never Forget That It’s Business.

Too many conflicts in family businesses are driven by emotion. Family members often fail to consider the consequences of the way they treat each other in the business or else allow personal matters to affect how they treat each other at work. Separation between business “business” and personal “business” can be hard. It may feel personal, but it’s also about the business.

Have an Organization Chart or Plan

Like any business, a family business must have defined roles for both family and outsiders. The business should include at least one non-family member in a key management role. Success and advancement in the family business must be based on defined goals, not based on nepotism.

Require Employment Outside the Family Business First

Maybe the plan from the beginning is to have Junior join the family business. However, if Junior’s only work experience is in the family business, it could be not only a disservice to Junior, but to the business itself. Working outside the family business first will provide the next generation with a broader perspective, allowing him or her to bring in fresh ideas.

Get Good, Outside, Independent Advice

Every business needs honest, unemotional, and objective advice. This is even more true when the majority of decision-makers are related to each other. Even if family members are trained professionals – lawyers, accountants, etc. – it is vital that all family businesses find outside advisors whom they trust to seek their opinion and guidance. You (and the generations to come) will not regret it.