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Should You Hire Family or Friends?

Do you want to mix business with family or friends? To preserve the ties that bind, be sure to prepare with care.

You've been talking about starting that flower shop with your best friend for years. Or perhaps you and your brother are finally ready to open that restaurant you dreamed of endlessly when you were still sharing a room at home.

Now that you're in the start-up phase, the real issues of running a business with a close friend or family member are upon you. How will you stay friends? How will you separate your work life from your home life? How do you avoid a bleak failure that will haunt your Thanksgiving dinner table for years to come?

Family business experts echo one definitive piece of advice for start-ups: Communicate. Get everything out upfront, draft contracts and have discussions where you dissect every possible business scenario. "This should all be done in a very nonjudgmental environment," says Jim Ellis, director of the Family Business Program at the University of Southern California. "[You] need to discuss those issues upfront, when nobody's got an ax to grind and there's no emotional situation-because there will be emotions later on, without question."

Putting away all fairy-tale notions about the "perfect" family or friend business is step two. Ellis recalls a nightmare consulting case when an entrepreneur had to fire his mother, causing years of strife. Even now, says Ellis, though the business no longer exists, there is still much animosity in that family.

Although there's no foolproof way to avoid such an ugly experience, experts suggest a few tips for increasing your odds of success. Says Ira Bryck, director of the University of Massachusetts Family Business Center in Amherst, Massachusetts, "People [involved in family businesses] need to do what they're especially good at. They need to know what their job is and what their job isn't." By defining everyone's job titles, compensation and responsibilities upfront, you can prevent any kind of future drama.

In the end, warns Ellis, you may have to choose between friends or family and your business. When long-time high school buddies Adele Testani and Ken Deckinger founded Hurry Brands LLC in New York City, they went into it knowing that their friendship would always take top priority over everything else. Says Testani, 26, "If anything ever happened with the company, we'd want to save the friendship."

If you plan carefully enough, a family or friend business can be rewarding as well as profitable. Says Deckinger, 28, who expects HurryDate, the company's signature dating service, to gross upward of $500,000 this year (2002), "It's fantastic to do this-to pursue a dream with someone you are really close with."

QUESTIONS TO PONDER

Thinking of jumping in with a close friend or family member? Sit down and discuss these issues before you take the leap:

1. How long do we expect this business to last?

2. How hard do you anticipate working? How hard do I anticipate working? What are the steps we'll have to take if one person is not holding up his or her end of the bargain?

3. What are your expectations of me as a partner? What are my expectations of you?

4. Is this business going to provide a lifestyle? Is this business going to create wealth?

5. Do you expect to put all your family members on the payroll? Do I?

6. Do we have a plan for the end of this business? Do we have a buy-sell agreement in place?

Contact Sources

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This article was originally published in the April 2002 print edition of Entrepreneur with the headline: All in the Family.

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