Family businesses are the bones of our economy, so they’re with us until the end. We need them to be strong, especially right now, when economic growth is needed.

So what is considered a “family business”?
  • It is a company owned by one individual whose non-owner family members are employed in the business. For example, a person who hires both their cousins to operate the food counters where you get your sandwich every day. Even if the cousins are not owners, this is considered a family business.
  • A multi-owner company where the owners are related by either personal relationship, marriage, or blood. Even if the none or at least one of the owners are active in the company, it is still considered a family business.
Some of the issues that you may have seen in the past have been made worse, or even caused by, the close relationships of the company. Here are some examples, and in a couple of cases, fatal errors that a family business can make.

Mixing business and family funds
I know… at times it’s a hassle to make sure everything is separate. Please do not let temptation trick you into taking shortcuts, and keep your business the separate entity that it is.

Putting family in control without proper procedures
It doesn’t matter if one particular family member has a great reputation with money, you don’t always need checks and balances. Guarantee your policies are just as strict as they would be if a stranger was doing the work, and have everything reviewed by your CPA.

Putting children on the payroll to fund their education
This is a tax planning technique pushed to its limits. Family members should lead by example, not by being the exception. Their pride will spread throughout the business.

Family employees have greater benefits than non-family employees
Why would anyone want to succeed if they don’t reap the same rewards? Make sure you treat everyone equally.

Bringing personal drama to the office
This is a leading cause of productivity slumps in any business. Set a professional example and all your employees will soon follow.

Taking business home
This is a typical mistake in a marriage or domestic relationship. It’s a complicated opportunity to ruin both your business and the relationship. Adhere by set rules, and stay true to it. If you need further assistance, seek the help of a reputed family counselor.

Putting off any type of estate planning
An in-depth estate plan will save you much more than what it actually costs.

Disregarding any planning if something happens to the owner/s
Stay ahead of your business legacy by purchasing life insurance to help ease the cost of transition.

Assuming the next generation will take over the business
Just because they’ve been with the business their entire life, doesn’t mean they’ll know how to keep things going. Start grooming a successor at least a couple of years before you get out of the game. If no family member wants to keep the business going, and you don’t want to bring in strangers, now is the time to build a detailed plan for a sale or merger.

These faults aren’t always intentional, but they harm the business and the family just as much. A few are guaranteed to increase fraud while others stir up cash flow, management, or tax issues, not to mention the personal dilemma involved. To minimize any possible problems, go see your attorney, CPA, or another trusted advisor for knowledgeable help.