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Challenges When Running a Family Business

There are over 28 million small businesses in the United States and 19 percent of these small businesses are family-owned, according to research published by the U.S. Small Business Administration. Whether you're the founder of a new family business or continuing a multi-generation family business legacy, working closely with family can come with pros and cons. These are some challenges family businesses face and constructive solutions that will help protect both your business and your relationships.

Mother and daughter glance at a tablet.

Conflict resolution.

Professional colleagues may disagree, but workplace etiquette norms typically help keep a good workplace environment. With family; however, there's a temptation to default to less constructive communication patterns, bringing up decades-old resentments or turning personal disagreements into workplace arguments. Remember, a family business is still a business, and your family members should be treated with the same respect you would treat professional colleagues. De-escalate disagreements by following a standard approach to conflict resolution: identify the problem, share feelings and develop solutions as a team.

Performance problems.

Typically, when an employee fails to meet performance expectations, a supervisor may give the employee a warning or, if the behavior continues, fire the employee. When it comes to family members; however, firing a relative is more complicated. Whether it's out of loyalty or a desire for family harmony, you may feel obligated to keep a poor performer on the payroll. Unfortunately, doing so can impact the rest of your employees and leave you vulnerable to criticisms of favoritism. If you have not done so already, outline the family member's responsibilities in writing and define clear performance benchmarks. Discuss the repercussions for missing these benchmarks. Offer support through things, such as training or continuing education, to help expand their talents. Let your family member know that you want them to be successful, but they need to be willing to do their part, too.

Compensation and benefits.

Before you hire a family member for a part-time or full-time position, have a candid conversation about compensation expectations. In some cases, a family member might be offering to provide help in a pinch. For example, high seasonal demand could mean you need to quickly onboard qualified professionals for a limited time but can't find the right hire. In these cases, outline in advance all job responsibilities, including the start date, end date and the weekly salary or hourly rate.

For permanent positions, consider the market value for your family member's qualifications, skills and experience. If a role would typically pay $60,000 a year but your family member doesn't have the necessary skills, explain in advance why the pay may be less and how they can obtain a pay raise. Likewise, if your family member is well-qualified for the position, be prepared to pay the market rate. This is an important conversation to have so that neither you nor your family member feel like anyone is being taken advantage of.

Succession planning.

As a small business owner, retiring won't be as simple as handing in a resignation letter. If you want to pass down your business to family members, you will need a succession plan. This is a document that defines your successor, details your business vision and outlines the transition process. Choosing a successor for a family business can sometimes be contentious— you may have strong feelings about who should take over, but not everyone in the family may agree. This is why it is critical to outline your plans in a legal document. Consider what is best for you, your family and the future of your business.

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