Things to consider before going into business with family

Starting a business with a family member or multiple family members might seem enticing at first. You’re comfortable with each other, you may already have shared finances, and you likely have a good read on their capabilities. Just like mixing “business with pleasure” can be risky, so can mixing business with family. Relationships may be put at risk on both a professional and personal level as work/life boundaries become blurred.

Here are a few things to consider before jumping into a joint venture with kith and kin.

Will finances be shared?

If you’re entering a situation where your income is coming from the same pot as your family member/business partner, then you could incur significant financial risk. For one, if the business isn’t successful, then neither of you will have a secure income, which is especially risky if you have dependents.

Depending on how close you are with this family member, they may take a fairly lax approach to how the money you make together is used. No one wants to have an awkward conversation with family regarding spending habits, so it’s best to know how the other person deals with money before potentially sharing a bank account.

How healthy is the relationship?

If you have a fairly rocky relationship with your brother, but he insists that you’d be great together as business partners, take a step back and evaluate things. A strong business relationship with a family member comes from a solid familial foundation. If you have a history of not getting along with the sibling, cousin, or even spouse that you plan on working with, then perhaps entering into a business partnership isn’t in your best interest.

Family members often know exactly which buttons to push during arguments, which can cause disagreements to escalate quickly. It can be difficult to separate business and personal interests, and business disagreements, however justified, may feel like personal attacks.

How will performance be evaluated?

Despite any objective, professional stance you agree to take regarding performance evaluation, telling a member of your family that they are not performing very well can be dicey at best. Any negative remarks about the business, though perhaps justified, may be seen as personal attacks. Real issues will start to arise if one partner isn’t keeping up their end of the business agreement, since any mention of it could result in a fight, and fear of that may lead to years of “letting it go.”

Set clear parameters for evaluation early on so that there can be no accusations of pettiness when it comes time to discuss performance.

Who’s calling the shots?

It’s important to develop corporate governance over strategic decisions from the outset, especially in situations involving equal partnerships. If you and your family member can’t agree on a particular aspect on the business, then a previously agreed-upon decision making framework should be the fallback. Get out ahead of disagreements before the arise (and they will) for the good of the business.

This should also include the development of a process for dispute resolution that includes when to bring in an outside advisor.

Other considerations

  • Determine a compensation plan for all family members involved
  • Develop a policy for hiring/partnering with additional family members
  • Outline roles and responsibilities from the beginning
  • Commit time to fun outside of work
  • Avoid “keeping score”
  • Recognize and verbalize each other’s successes
  • Formalize a succession plan
  • Communicate, communicate, communicate

Though forming a business with relationship with a family member is inherently risky, working alongside people you know and trust, while generating family wealth, can be very rewarding. Set up clear and objective processes and policies from the get-go and make every attempt to leave emotions at the door.

If you have any questions about starting your business or would like assistance with strategically planning your family business, please call Beal Business Brokers & Advisors at 204.478.7266 or email us at inquiries@bealbusinessbrokers.ca.