Behind the success of every small business, there is family. As a small business owner, you want a company that serves your family’s interests above all else.

Your business has an impact on those closest to you, especially your family. Family is defined as the people in our lives with whom we are intimately connected. We may or may not live together or even be biologically related. In some circumstances, a family member may be either our boss or employee. Even when your family does not work in your business, they are impacted by the business. Businesses involving family members can face some unique challenges, so the more prepared you are, the more successful your business will be.

What does it look like when family business goes wrong? Let’s talk about an old client, Gerald.

Gerald, a shrewd businessman, is often described by others as a wheeler and dealer, always looking for a way to make a buck. His family uses other, less-kind words to describe him. In order to finance some of his “deals,” Gerald talked his mom into lending him money. He also convinced his wife to remortgage the family home with a large line of credit to fund one of his ventures. His children barely knew him as they grew up, as he spent all his time at work. He was either chasing after the next big dream or putting out fires from the current one.

Gerald’s mom has not been repaid, even though she desperately needs money for her own care. His children are now working in the family business, grateful to have a job. His daughter, however, would rather be doing something else, but she is the only one who knows how to run his software. Her brother also works in the company. For some reason, dad thinks that men need to be paid more than women, so his daughter makes thirty percent less than her brother doing similar work. This causes even more family tension.

Gerald stopped sharing anything about the business with his wife long ago. He was tired of the fighting and didn’t agree with the advice she gave him on how to remedy problems. She therefore has no idea how bad things really are. They even stopped sleeping in the same bed years ago because of the tension caused by the business. She is worried about his health, about their future as a couple, and wishes more than anything that he would just cash out and get a real job.

Can you relate?

Even profitable businesses can divide families. And functional families who all get along may turn chaotic amid day-to-day business stress.

In your family and your business, we need to be honest about both. Let’s do that with a quick overview of the pros and cons of these unique creatures we call family businesses.

Ten Pros of a Family Business

1. Pride of ownership. Building a business from the ground up with a team of people who are related feels incredible. And you can share this pride with your children.
2. The ability to generate income and profits from the business and to share that income within your family.
3. The family members are usually more committed to the success of the business than regular employees, as they each have a personal stake in its success.
4. The ability, in many cases, for flexibility if situations arise which affect a family member’s ability to work.
5. The opportunity to build a family empire with longevity, which can carry on for future generations.
6. The ability for smoother decision-making, as outside shareholders or employees don’t have to be consulted in making management policies.
7. Building a strong sense of camaraderie and unity among family members and strengthening family ties while working in a more relaxed atmosphere.
8. In some cases, there are tax advantages to employing family members. Profits and salaries can be adjusted to minimize certain tax situations.
9. Knowing the personality of the person you are hiring, as often an employee can hide their faults in an interview, which may lead to needing to fire them. Family is a known quantity.
10. Being able to adjust salaries and certain costs if there is a cash flow crisis or if funds are suddenly required for a capital investment.

Ten Cons of a Family Business

As wonderful as it sounds—and many people make the mistake of only looking at the positives—there are downsides to a family-operated business. To avoid the dream becoming a nightmare, you need to be fully aware of the common pitfalls. These include:

1. Having an inconsistent income, particularly during the start-up phase and early years. It can be boom-or-bust. Without the assurance of a regular income, the financial future of your family and home may be at risk.
2. A huge time commitment from family members, which means your personal lives can be affected and time together is often mostly spent in the workplace.
3. Rarely having time to take vacations together or to celebrate special occasions.
4. If the business grows rapidly, the growth can change the whole family/employee dynamics and leave even less time for “fun things.”
5. Walking a fine line in not showing favoritism to a family member over other employees or even other family members.
6. The fragility of the large financial investment which many families make into the business based on expecting it to succeed.
7. Feeling an added pressure to succeed for the family, which in turn can be detrimental to the family lifestyle if the business takes up too much time or money.
8. More stress to get the business off the ground. This usually means less sleep, more worry, and missing children’s events.
9. If the business fails, often the family financial structure is affected, and it leaves all members without an immediate replacement income.
10. Being more susceptible to family arguments, it is also more difficult to discipline or fire a family member should they not perform their work as expected.

Take Care of Business, Take Care of Family

You need not only business-related goals, but also family goals. Having family working together means that as a cohesive unit, you all need to be working towards the same goals, both within the family and the business. You can’t have any one person with strictly self serving goals. 

A business can grow quickly or flounder just as rapidly. Often, these situations are unforeseen and not in your plans. When family is involved, the ramifications of both affect everyone who works there.

To make a plan, answer the following questions:

1. What obvious changes do you need to make or would like to make?
2. Have you set goals together?
3. How is our current set up working for me?
4. How is it working for my family?
5. Is this what I had in mind when I went into this business?
6. Is the family unit stronger or under too much stress?
7. What would be our ideal business and family goals?
8. How many weeks of vacation do we all want?
9. How much money would we and the business like to earn each month?
10. What are my goals for acquiring a larger home or premises?
11. What amount of debt is the whole family comfortable carrying?
12. Who does which job, and is each family member competent at that work?
13. How much time does my family want to spend working each week?
14. What does my family need from the business, and can it meet those needs?

When you write down your answers to the above analysis, it can open your eyes to situations you may have ignored—or not even realized. Carefully study the above points and write down anything that applies to your situation.

How do these answers affect your family in particular? What has been the impact on you and your family of not having these things clearly defined? This could include changing family relationships, time, money, and health issues. You may think of others.

Now that you know the impact of the business on your family, there may be areas which require some changes to make both your business—and your family unit—operate more successfully and succinctly.