Going into business with a family member, is it a good idea?

9th September, 2011

Isn’t there an old saying that goes along the lines never lend money to friends and family? Should the same apply to going into business with family?

When I started my accounting practice, my first employee was my father. The conversation went something like this:

“Dad, I need help, I don’t know for how many hours a week and I don’t know if I can pay you, but will you come and work for me”

“Yes of course I will”

That was it, there was no discussion about job descriptions, areas of responsibility, they just happened as we went along. Fortunately for me, the relationship worked very well and Dad remained a key employee in the business until he retired.

But, as can happen in business, this lack of structure could just as easily destroy the business and the family relationships that surround it.

READ: Family matters — the challenges of a family business

Why does this happen?

  1. There is no distinction between the family and the business roles. For example, father and son go into business. In the home, Dad (traditionally) is the boss. But in the business the son may be the boss. If this role reversal isn’t recognised and discussed problems can occur.
  2. Lack of communication. Everyone knows each other well, so we tend to assume we are all on the same page and thinking the same way. That may not be the case.
  3. Not distinguishing between a family issue and a business issue. For example, a husband and wife may disagree about their son moving out of home, this flows into the business in the way they speak to each other and interact with their clients.
  4. A major crisis in the family unit, for example a marriage breakup, death of a key family member

What can you do to avoid these issues?

  1. Put in place formal structures and systems. Have an organisation chart. Someone has to be the boss and this will help you identify what the roles are in the business and who is reporting to whom.
  2. Job descriptions should be in place for all employees including family members; a family member is no different to any other employee and should have regular performance reviews and ongoing training.
  3. Have regular meetings. These can be structured as formal board meetings with agendas and minutes. Or less formal Monday morning catch ups so everyone knows what is happening. You might even like to have a family ‘retreat’ to strategise for the future and review how the business has performed.
  4. Have a plan. Where is the business going and how are you going to get there?
  5. Have shareholder agreements. If there is a dispute or a major crisis you have a process you can work through.
  6. Have an independent advisor (this could be your accountant, business mentor or advisory board).  As part of the team they can help implement processes and procedures, and then keep in regular contact to monitor progress.
  7. Most importantly, at the first sign of trouble, ask for help.

A family business is no different to any other business. With a solid foundation of knowing where you want to go, how you plan to get there, and monitoring progress, going into business with a family member can be very satisfying and successful.

Have a look at your own situation.

Do you employee a family member or is your business partner a member of your family?

Is something niggling in the back of your mind that keeps you awake at night about the relationship?

How do you deal with disputes or issues that come up?

How is your communication? Are you mindreading or do you have processes in place?