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The Good, the Bad & the Ugly of Family Business

Don't sign up for that business license just yet--make sure you know what you're getting into with a family business.


Q: I am planning to start a homebased business with my family members. I would like to have some guidance on this. We do not have much capital to invest, but we are hardworking and dedicated.

A: Before I address the issue of starting a business, I must ask you why you want to start a business with your family. If it's because you think it will be greatly satisfying to build a business with the people you love and will allow you to spend more time with them, you're not alone. Many family businesses are started for these reasons. Unfortunately, that's not enough of a foundation on which to build a solid business.

Have you ever lived with a good friend--say, as roommates in college? If so, you know that just because you are great friends does not mean you will get along in close quarters. It doesn't doom you to pulling each other's hair out and changing the locks while the other one is at work, either, but you do need to sit down together and sketch out all the details of what it will be like to run a business together. You won't really know whether you get along as business partners until you are actually running the business, of course, but some forethought can go a long way toward eliminating messiness down the road.

The key thing to keep in mind is that family "systems" and business practices do not go hand in hand. The quarrels that Dad and his son have over who drank the last of the milk have no place in a business. (Would you ever argue about milk with your boss?) Statistically speaking, most family businesses do not fail because of a business reason. It's the family baggage that weighs them down and eventually kills the business.

Essentially, each family member must be prepared to behave in his or her role exactly as they would in a traditional office setting. Cold as it may sound, the business must come first if you want to be successful. You can call one another whatever you like as far as titles go, but the important thing is that each role is well-defined and you all respect one another's boundaries. For instance, an employee-daughter should not be asking a CEO-dad to "take care of" this or that because she has a softball game that afternoon, and vice versa.

While there are clearly some possible disadvantages to operating a family business, there can also be advantages. Family members are often fiercely committed to making the business succeed--everyone is a strong link, because everyone has a stake in seeing that the business prospers.

In addition, family members are often sensitive to one another's needs. While it's certainly wise to keep personal matters out of the business, this rule doesn't always work. If someone has a major crisis, other family members can respond accordingly, taking on that person's work for the day or just taking time to talk it out. Business comes first, yes, but not at the expense of any family member's well-being.

So before you start your family business, take the time to work out all the details. Do some brainstorming together to decide what type of business you might like to start together--one that will augment everyone's talents and pool them in such a way that your business can grow for years to come. And make sure all parties are aware of the unique risks and rewards associated with family business.

The opinions expressed in this column are those of the author, not of All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.

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