The United States has about 5.5 million family-run businesses, which produce more than half of the nation’s gross domestic product (GDP). Running a family business is far from easy. Mixing close, family relationships with running a business may cause conflict. Depending on the personalities involved and the role your family members have in your business, you could end up in a dispute before you know it. In order to avoid that, family business owners should take the following steps:
- Have employment agreements for family members. You need to detail what their job responsibilities are and their wage compensation. You also want to spell out what the terms for termination will be if a family member isn’t doing their job as they are supposed to.
- Treat employees who are family members in the same way you treat other employees. You don’t want to show favoritism to your family members over other employees. Nor do you want to have unreasonable expectations for family members who are employees or punish family members you may have personal issues with.
- Protect your family members’ investments in the business. If you will be launching your family business with multiple members contributing to its startup funds, you’ll want to create an LLC. This way, you and your family business partners, won’t be personally responsible for any debts your business accrues. You also will protect yourselves from personal liability in future lawsuits.
- Separate family decisions from business decisions. This is easier said than done, but you don’t want family members to feel they are always on-call to deal with business-related matters.
- Create a succession plan. At some point, after you’ve established your business, you’ll have to think about who might take it over someday. You want to plan ahead for this, specifically naming those who will assume the role of company CEO and CFO. You don’t want your business to suffer if a family member suffers a serious accident or illness and can no longer lead the business.
By following these tips to avoid family business disputes, you can keep your family business running strong, hopefully long enough to see another generation take it over.