Should You Mix Family and Business?

They likely know you better than anyone else. At times, they've been your biggest cheerleaders, others perhaps your biggest critic. They're family, and they love you and want you to succeed. Yet should you partner with them in a business, ask them to invest in your latest entrepreneurial idea, or hire them to work for you?

 

According to the US Findings of the 2021 Family Business Survey conducted by PWC, two-thirds of family-owned businesses in the United States have next-generation family members working in the company.

 

Mixing family (or friends) and business is a delicate balance that can be tricky to navigate. But it can work under the right circumstances. Excellent communication is a must, and each person must make their requirements and expectations clear and verify they understand what everyone else requires and expects.

 

In this article, you'll learn about some pros and cons of working with family members as part of your team. Plus, we'll supply tips for creating a family-run business while protecting relationships, so everyone wins.

 

Advantages of Mixing Family and Business

Family ties are strong and often last a lifetime. That's why many people tap into these connections and include relatives as part of their business plan.

 

Here are some of the benefits of having a loved one involved with your company.

  1. Providing a job or career option. When you hire your nephew or start a business with your sister, you provide employment and possibly a new career path for someone you love. And by accepting financial resources from a family member, you're allowing them to invest in you and your future too.
  2. Familiarity. If you're considering working with a relative, you're already comfortable with that person and vice versa. You'll save time applying for funding, advertising a position, hiring an employee, and getting to know who you're working with. Your learning curve won't be as steep because you're already familiar with their knowledge, skills, background, personality, and motivations.
  3. Shared values and goals. When you mix family with business, you have a higher likelihood of having similar values while striving for common goals. With strong emotional connections and high levels of trust, relatives will seek ways to help you find success through their support and encouragement - especially during challenging times.
  4. Greater levels of commitment. While there are plenty of wonderful people in the world, a family member may show a stronger work ethic and commitment to your business. Less turnover of employees provides more stability for your company and greater potential for long-term growth.
  5. Advice and feedback from people you trust. When the family is involved, you may feel more comfortable asking for help with your business. Loved ones have a vested interest in your success, leading them to make suggestions about your business and where it might need improvement. This could help you avoid costly mistakes.

    Your family member may even offer insight into your personality traits, strengths, weaknesses, and other characteristics to help you grow your company. They might also bring new and fresh ideas that spur growth.
  6. Building stronger relationships. When you work with a relative, you'll likely spend a lot of time together. And whether your business is thriving or you're working through some company challenges, you'll be doing it on the same team.

    You'll celebrate success together and grow stronger from dealing with adversity. You may gain new skills and knowledge while learning how to manage conflict and disagreements better. You'll also deepen mutual respect with your loved ones for each other's efforts.
  7. Increasing connections. When you bring a family member in on your business, you also bring people they know into your business network. If your company expands, new investors may be interested in supplying funding for your growth.

    Your family-business partner may bring people they know to fill critical roles in your company or introduce you to people who become customers. And it's not just about business; you may even develop personal friendships with people you meet through your relative's business connections.

business handshake after deal

Drawbacks of Mixing Family and Business

While there are several reasons to bring family members into a business venture, don't ignore the potential problems you may face by having loved ones connected to your company. Keep in mind, the excitement of starting a business or the stress of running one may cloud your decision-making.

 

Many warnings about "mixing business with pleasure" with colleagues also hold for people in your family. And while tricky situations and people at work may come and go, challenging issues with your family and business may negatively impact your relationships and income for years.

 

Carefully consider the following reasons why you might avoid having relatives invest in your company, partner with you in a business relationship, or become your employee.

 

Reasons Family Members Shouldn't Invest in Your Company

You may have family members who can invest in your business financially. But that doesn't mean it's a good idea to use that funding source to begin, grow, or support your company.

 

While loved ones may offer you money with better terms and require less paperwork than a traditional business lender, it may come with different (and challenging) strings attached. Family with a financial interest in your company may try to influence your decisions or suggest other ways to run your business.

 

If you don't follow their advice (and even if you do and aren't successful), their attitude about the investment in you and your business may change - especially if your business is struggling or fails. While they may understand the risk of putting money into your company, losing it may harm your relationship. They may also expect greater profits when business is booming.

 

If you decide to accept financial resources from someone in your family, be sure to document the transaction, ensure it's legal, and make certain that both parties understand the terms and tax implications of the agreement before signing.

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Why Your Business Partner Shouldn't Be a Family Member

You and a loved one may produce a business idea together, or a family member may be a perfect fit to join you in a business venture. But before you start a company or make a spouse, sibling, or child your business partner, be sure you consider the long-term impact it might have on your relationship.

 

Goals for your business may align with your partner to start. Still, you may find out that your beliefs and ideas about work, effort, risk, success, and "enough" may vary over time.

 

One of you may put profit first, and the other wants customers first. You may want to grow your company or take it in a new direction. At the same time, your family-member partner may be content with your current business plan or itching to move on from the business.

 

As your business and families grow and change over time, the dynamics of your partnership may change too. While some partnerships can weather complex changes, an exit plan is essential to preserve family relationships when you're in business together.

 

Why Family Members Shouldn't Be Your Employees

A loved one could be a model employee or someone you can't work with or trust. If the latter becomes your reality, you'll regret hiring a relative more than someone you don't know.

 

You may feel pressure or want to help relatives out by hiring them even if they don't qualify for certain positions in your business.

 

Suppose their skill set doesn't align with the job or their attitude or work ethic goes against your company's mission. In that case, will you be able to discipline or fire your cousin, brother, or child?

 

Will your family expect special treatment or compensation because of your connection?

 

Even if you treat everyone fairly, will your other employees perceive nepotism that may not even exist?

 

It's essential to understand complications that may arise with the individual or with other workers in your company should you choose to hire a family member for your business.

 

More Reasons to Avoid Mixing Family and Business

Root causes of some of the issues we describe above include conflict, changing life circumstances, and unclear communication and expectations.

 

But mixing family members and business also requires clear boundaries between work and home. Going home or spending time with family is usually at least some reprieve from business issues when you have problems at work. Yet when relatives are your colleagues or employees, there's little separation between work and family life.

 

If you have little choice but to rely on relatives as employees, you may also give up some level of control with your business. When dependent on family members, you have less autonomy as a business owner. You may even end up compromising on your beliefs and values to keep relatives happy and productive at work.

man in suit reading Business newspaper

Questions to Answer Before Mixing Family and Business

Now that you know some of the pros and cons of allowing relatives to be part of your company, here are important questions to answer before deciding to mix family and business. Share your responses with someone you trust who also knows the family member joining you in business and ask for their honest feedback.

  • What is your personality like?
  • How well do you give and take feedback?
  • How do you deal with conflict?
  • What are your short- and long-term goals for your company?
  • What is your relationship like with your relative?
  • How open is your family member to feedback?
  • What are your relative's goals related to the business?
  • Do you qualify for funding sources without the help of family members?
  • Do you have the roles and responsibilities for family members clearly defined?
  • Does your relative have the knowledge, skills, and desire to do the job?
  • Can you pay a fair wage and benefits? If not, what other compensation (i.e., discount or free services or products) can your family member expect?

Planning For and Managing Family-Business Relationships

If you've decided to include relatives in your business strategy, there are proactive steps you can take to plan and manage this type of relationship.

 

Here are six actions you can implement to help ensure your family and any business partnership works well:

  1. Schedule ongoing communication. Having regular conversations with your relative is essential to a healthy family-business relationship. While the frequency of these meetings will depend on their role in your business, don't underestimate the power of setting aside time on your calendar to share information and gather feedback from your family member.
  2. Negotiate expectations. Talk to your relative about the goals you hope to achieve with your business. Then, explain and discuss the role and responsibilities of the relative's position. If they're investing money or other resources in your company, clarify their expectations and make sure you're comfortable with what they are asking for.

    Partnering with a family member? Be upfront about the commitment you need and your expectations for the business relationship. If you're hiring a relative as your employee, ensure you explain the tasks that need completing and how much time and energy you expect them to put into the job.

    Your willingness to negotiate expectations before creating a family-business relationship is key to developing a successful business and preventing misunderstandings and hard feelings.
  3. Set boundaries. If you're going into business with family, you'll need to create clear work-life boundaries. While you may not be able to avoid all your business dealings when at home, talk to your relatives about how and when it is acceptable to mix business and pleasure when you're away from work. Then, respect the boundaries you set and focus on growing your relationships outside of the company too.
  4. Plan for conflict. No matter how close you are to your loved one or how great your relationship is now, you won't always see eye-to-eye. By recognizing that you won't always agree, and conflict is inevitable with family involvement in your business, you can plan how to address conflict when it arises.

    Create a plan to address problems with your relative before you need it so that you both know what to do when you disagree or are upset about an issue.
  5. Put agreements in writing. Just as you would if you worked with a traditional lender or non-family members in a partnership or employee relationship, you should agree on the terms of a loan or work relationship and document everything on paper. While it may seem like a formality, having both parties "sign off" will pay off in the long run if there are problems.
  6. Determine an exit plan. It's essential to be realistic and understand that either you or your relative may want to end your business relationship at some point. When you've created a way to move forward in business without your family member, you'll both be in more control of your futures. This can help preserve your relationship when the business relationship dissolves.

Final Thoughts on Mixing Family and Business

While working with family can be incredibly rewarding, it also comes with challenges. It's a good decision for some relatives. Still, you shouldn't simply default to working with relatives or accepting finances from them because they're family.

 

Your unique family and business situation should drive your decisions. But remember: no matter who you choose to work or partner with for your business, you'll still need to keep your priorities straight and manage your own emotions and reactions to situations with care.

 

Think through your motivations, expectations, and plans before starting down the business path with a family member. You'll find that by being honest about where you stand and what you're looking for, you can build a sturdy foundation for success whether you include a loved one in your business plan or not.

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