8 Essential Rules for Going Into Business With Family

Nov 19, 2015
Shai Harary

family business
We’re a week away from the kickoff of the holiday season – Thanksgiving – and so thoughts inevitably turn not just to fowl, fixin’s, and football, but also to that other big “F” word – FAMILY.

You may find yourself talking turkey with your brother about a fabulous business idea he has, or your aunt might be thinking about buying a company that she’d like you to run with her, or maybe your dad finally got that patent and is looking for someone to turn his dream into a full-on venture.

But then you catch yourself and think, No way. Business and family do NOT mix.

I hear people say that all the time. For some reason, it’s a quick leap from great opportunity to horrendous mistake especially when familial ties bind a potential partnership. The naysayers will tell you that the risk is too high, the chance of reward too low, and that history is replete with hundreds, if not thousands, of examples of close family relationships that have been ruined over a business dispute.

But does that really mean you should never do business with family?  Is it truly impossible to work with people whom you’re close with and whom you trust, because something might go wrong… someday?


I think we can do better than that.

Wouldn’t it be great if you had a formula for how best to partner with a family member or close friend?

To me, it’s absolute nonsense to think that you can’t do business with a family member. In fact, I’ll go even further and say why wouldn’t you want to go into business with someone that you like, trust AND that you’d also be happy to see every day?  Someone whom you respect, whose opinion you value, and with whose work ethic you are familiar? To me, this sounds like EXACTLY the type of person you’d want to join forces with. Moreover, a family member understands that there is more than just a working relationship on the line – the personal relationship is important, too – and that knowledge makes for a very powerful tool to keep the best interests of the business front and center.

That said, it doesn’t mean that cautions to the contrary should be ignored. In fact, they should be taken to heart, and you should be extra careful to put conditions and protocols in place that will clearly define and govern the business relationship.

Put simply: a higher level of attention to structuring the agreement in the family business leads to a deeper understanding of who does what, what to expect, how performance will be evaluated and where exactly the business enterprise is going.

Here are 8 rules for working with family (and you can apply them easily to close friends as well):

1) Hang your family (or friend) hat up at the office door.
Everyday we all wear different hats. On any given day I know I wear many hats. I wear a lawyer hat, my husband hat, my dad hat, and my coaching hat. I don’t bring the same hat everywhere I go. And neither do you. When you are doing business with family, the first rule is to change hats.  Gotta put on that business hat for anything that pertains to running your company, and make sure your partner is putting on his or her company cap, too. The nature of an intimate, personal relationship is much different than that of a working relationship. While the hat analogy is cute, I think of it as very literal, as in a professional setting I believe it’s a conscious choice to change what’s going on with your head. If you don’t, then you will certainly bring in personal dynamics that may be difficult in your private life, but that are downright destructive and even embarrassing in your workplace. Nobody – and that means your colleagues, your clients, and/or your employees – wants to see a family fight played out in front of them. You’ll cut the likelihood of such a scenario down significantly if you remember that it ain’t personal – it’s business.

2) Get it in writing.
Because yes, you need a contract… ALWAYS! This also tops my list for any new venture, but in particular when you are dealing with friends and family. If you can’t put into writing what the nature of your business is, who gets what, who is responsible for what, financial implications, etc., then you really have no business going into business with a family member or close friend.  When you hear yourself saying “it’s cool . . . we’re family…  it’s all good,” slap yourself hard in the face. That is NOT how to do business with ANYONE, ESPECIALLY family.  It requires more paper and deeper discussions than a business partnership between two unrelated parties. Having a written agreement right up front that separates your family commitments from your business commitments is crucial.

3) Keep your working relationship professional because it’s NOT personal.
When you’re going into business with a family member or close friend, it’s key that you both agree that your relationship is now moving into new territory, and it’s not a “casual” situation. You’re not going out for a beer. You’re cutting a check. You’re motivated by a drive to make money. Give each other permission to treat one another differently because you’re not just dealing with personal interactions; you’re launching a new venture together. Maintaining a functioning partnership is a choice and an obligation, not a right. What goes along with this is more paperwork; make sure you each have a job description, and it’s clear who is responsible for what. This is especially important when you have similar skill sets.

4) Get in sync with each other’s business goals AND styles.
Sometimes being candid about motivations, desires, and needs may be complicated when it comes to family. This is why it’s imperative to understand and accept your partner’s short and long-term objectives. Is one person looking to build up a business and then cash out? Is the other aiming for it to be his or her life’s work? Does one of the partners want to only work part-time, while the other is gearing up for 80-hour workweeks? Agreeing to the parameters of what happens both in the short run and also long term is imperative. Get in on the same page.

Equally important are business styles. Take for example a father and son that decide to start a venture together, and yet they have very opposite views of risk. The father, more conservative, is less likely to take chances, financially and otherwise. The son, younger and less risk adverse, may be pushing for faster growth through more audacious moves. This is a classic stylistic source of conflict. Some “up front” business counseling from a skilled lawyer/advocate could be helpful to prevent a conflict in this situation.

5) Keep it all fair and equal. 
Most businesses have set times for the workday, a certain amount of personal days and vacation time, and so on. Whatever the rules are, it’s not OK for you or your family member to bend them in the context of the workplace – particularly if you have a staff beyond just you and your partner. Then again, if you agree up front for flexible work schedules, more vacation time for partners, etc., that’s fine – the key is to communicate to all employees what the expectation is, so that it’s clear, consistent and NOT just random preferential treatment for family members. As a close friend said to me once, “All things being equal, do business with a brother, but things have to be equal.”  So make sure you have a commitment to do just that.

6) Just because you’re family, doesn’t mean you’re in charge. 
Another aspect you have to consider when establishing your family-run business is the market value of each relative’s job. For example, if it’s a father and son business, and the father has been in the workforce for 30 years, then it’s appropriate for him to take on the role of president of the company. And if the son is a new college grad, then he should be put into an appropriate position (i.e., entry level) and paid accordingly. Family businesses – like any other companies – function best when people work their way up, learning the nuances of each position along the way.

7) Open, honest communication is a must. 
This can be very difficult, as this is a prime place where intimate relationships can complicate business ones. In most corporate settings, there are goals that are set, reviews that happen regularly, and so forth. Make sure that you have these protocols in place to enable professional exchanges about tough topics, and allow the space for open communication about objectives, approaches, concerns, etc. Blowing problems off because it feels difficult to be real and honest with your family member is a surefire way to brew a nasty dispute that can easily seep from the workplace into your family life.

8) Have a conflict resolution resource on standby.
And finally, perhaps most importantly, be proactive when it comes to identifying a trusted advisor that can help you resolve disputes before they escalate. This is a good idea for any kind of business relationship or partnership, but it’s even more imperative when it comes to a family business. You may want to pick a family elder or someone else related to you (or who’s a great friend to you and your partner) that you respect both respect. It could also be a lawyer or mediator whom you both trust that if a dispute comes up, you will feel comfortable leaving the resolution up to that individual.

So this holiday season when you break bread with your relatives, just know that you don’t have to break into a sweat, too, when someone mentions a fabulous business idea s/he has. You now have some tools so you can say, “Really?  Tell me all about it.”

All across this country there are hundreds of thousands of successful family businesses. We only hear about the ones that go awry. So take this advice to heart, and follow these steps to making your family business work.

And give thanks for family!

Photo credit: Carl Lender, of Lender’s Bagels, originally a family owned and run business that epitomizes the American Dream. What, I should show turkey farmers?