Family business disputes shake the foundations of both a business and a family. But many of them can be avoided. In my practice as a family business attorney I’ve seen the benefit of taking four key steps towards keeping a family workplace profitable, productive and drama-free:
Keep family finances and business finances separated – by a brick wall. Many family businesses grow out of a passion of the founder and often start as a side-job or a hobby. In their early stages, they probably don’t make money so the founder treats it as “found money.” But once the “found money” turns real money, it’s time formal legal entity that separates the family finances from the business revenue (though you really should have been doing that from the beginning!). Comingling is messy and legally precarious. It invites personal liability for every family member involved in the business.
Make it professional by getting all licenses required – with consistency. Many family business start off as home-based or stem from hobbies. So it’s common that people in without getting the proper licenses at first. This is risky and becomes riskier as the business grows. Most licenses are not expensive, but operating without them can lead to some costly outcomes like fines. In addition, if your business is shut down because you don’t have the correct licenses your reputation will suffer and you’ll lose significant business while you recover from the shut-down. Check to make sure you’ve got the correct local, state or federal licenses. And find out if there are zoning permits or variances which can be imposed and can lead to legal actions, especially if customers visit your office or home.
Have a succession plan – worked every day. Most family businesses do not have a succession plan in place. I recently read a study by LegalZoom that said that 75 percent of family businesses have no succession plan. That means that when the founder gets sick or dies, the business may very well do the same. Don’t assume that when the founder can’t run the business that his or her spouse or child will be willing (or able) to take over. Successors must be identified, nurtured and trained to take over the role of the founder when the time is right. If there is not succession plan created and put into action consistently, the business will not survive without the founder.
Recognize that it’s a family but also a business. There’s no doubt that a family business has ups and downs that other types of businesses do not. Nothing makes a business stronger than a group of people with a strong bond. On the other hand, what I’ve seen as a family business lawyer is that nothing makes a business weaker than one that’s run like a family project. It’s (relatively) easy to fire an underperforming or unmotivated employee in your business. It’s very difficult when that employee is your child, spouse or parent. It’s quixotic to think that you can run a family business exactly like a “regular” business, but you can’t expect business success if you always place familial interests above business interests.
Consider bringing in a non-family member as someone to talk to. In a non-family business, your family usually provides a safe space where you can talk about problems with your day, or difficulties with your business partners. But that safe space doesn’t exist when your family is part of your business. You can’t discuss a difficult business decision around the dinner table when those present are participants in the decision. It may be helpful to have an advisor or coach experienced with family businesses who you can discuss these matters with – not to make business decisions for you, but to give you a place where you can work through your thought process with some insulation from the many strings that pull on you in your family business.