At Paul Terry & Associates, we understand family-owned business dynamics. Paul worked for his father’s sawmill manufacturing business while in high school and college, and his first two businesses in San Francisco were partnerships with a married couple. Today Paul’s daughter Jenny is a part of the Paul Terry & Associates team, when she’s not running her family farm with her husband.
We know that owning and operating a business with family can have a lot of advantages, especially related to trust and a joint commitment to the enterprise. This is often essential in the early stages as the business is getting off the ground. Everyone in the business is driven by their passion for creating the product or providing the service. But once the “honeymoon” stage is over, things can get more challenging and complicated, as additional business skills are required. Careful attention must be given to operating the business and relating to one another as business partners and not just family members.
Roles and responsibilities
Every business needs clearly defined roles and responsibilities for the people associated with the business. This is especially important when the owners or the employees are family members. With a family business, every issue affecting your business relationship could easily spill over into your personal life. It is essential to:
- Create job descriptions outlining each person’s role and specific responsibilities, and revise when necessary.
- Set regular meetings (monthly/quarterly) to discuss tasks, responsibilities and how decisions are made.
- Confirm that employees who aren’t part of the family know how to deal with the family lines of authority.
When you have a personal and a business relationship with someone, communication requires extra care. It can be easy to be critical with a relative in ways that you never would be with a non-family member colleague. You probably know how to push his/her buttons! Simple rules of good communication must still apply.
- Address issues as they surface in a respectful, honest and open way.
- Approach your interactions from a place of respect and trust.
- Refrain from talking about personal issues during work time, especially when around people who aren’t family members.
- Spend time with your family members when you don’t talk about the business.
- When needed, bring in an outside mediator to help resolve the issues that you can’t fix alone.
- Use an experienced business advisor to help build your management skills.
Just like any other business with more than one owner, it is very important to have written agreements. This can include both the governing and operating structure of the business as well as the roles and responsibilities of each owner, particularly related to decision-making. Everything may be working fine… until it isn’t. For a family business, it is very important to consider these questions:
- How will family partners evaluate each others’ work? Will there be performance reviews?
- How will family partners be compensated? Does everyone make the same amount?
- What happens to profits from the business and how are they divided?
- What happens when one partner no longer want to own/run the business? Who gets the first right of refusal?
- What is the policy for bringing other family members into the business?
Like all joint ventures, every family-owned business needs an ownership operating agreement in writing. This agreement should include an operating agreement as well as a succession or exit plan to protect both the business and the personal relationship of the owners.
It is tempting to try and “go it alone” and take care of issues within the family instead of discussing your problems with outsiders. But outside support – whether from a trusted business advisor or another family-owned business – can bring different perspectives and solutions. An advisor or mediator can help you address underlying issues that may be difficult to bring up or handle without support. They can also help you implement and maintain better business systems and make adjustments as needed.
Here are local resources for family businesses:
Gellert Family Business Resource Center
This University of San Francisco center provides family-owned businesses with access to networking and practical family business information, and helps promote next-generation leadership.
Family Business Strategies Summit
The San Francisco Business Times sponsors an annual breakfast and conversation with family business owners every year. Family-owned businesses share some of the common challenges they face, as well as strategies and best practices for effectively managing and growing a family business.