Running a family business is no easy task, but when done right, can serve to set future generations up for success and leave a lasting legacy. If you’re thinking about starting a family business or if you already own one, watch out for these common family business problems that can hinder your company’s growth.

5 Family Business Mistakes You May Be Making

1. Combining Family and Business Affairs

Family businesses are often small and run out of the family home. As a result, you might forget to separate your personal finances from your business finances. When home and business accounts merge, family business owners run the risk of making big financial decisions that can bankrupt both the family and the business. The same holds true for employing family members — try to keep your personal relationship separate from what you do at work and treat all employees with equal amounts of respect to avoid family conflict.

What to do instead: Avoid this pitfall by maintaining separate accounts. Family business owners might also want to incorporate or form an LLC, which prevents the family from being liable for the debts of the business and vice versa. For employees, create a fair promotion and salary system so all employees, family or not, stay motivated and have a path for growth within your company.

2. Not Setting Clear Roles and Responsibilities

Setting boundaries and clearly communicating with your employees — whether they’re family or not — is vital. Everyone needs to have specific responsibilities in order for your family business to be successful. When employees are wearing many hats, it’s easy for tasks to fall through the cracks.

What to do instead: Outline employees’ roles and responsibilities and hold them accountable. Create detailed job descriptions for each employee. By defining roles, you’ll ensure that everyone in your family-owned business knows their responsibilities. 

Spelling out what’s required in each role will also come in handy in case you ever need to bring in additional employees from outside the family.

3. Assuming All Family Members Want to Participate

You’re excited about your new business venture! But that doesn’t mean all of your relatives feel the same way. It’s a mistake to assume that everyone in the family shares your passion for the business or wants to work at your new company. Don’t create roles for family members before they’ve agreed to work with you. You want all your employees, family or otherwise, to share the same excitement for your business that you do.

What to do instead: Clearly define the goals of your business, and make sure your family and all employees are on the same page. Approach family members as a potential employer, not a relative. Explain what you’re working on, why you think they would be a good fit for the operation, what kind of work you imagine them doing, and how much compensation you can offer. Be prepared to answer questions and give them time to think it through.

4. Losing Non-Family Employees

In many family-owned businesses, family members tend to occupy all leadership positions. Without an opportunity for non-family employees to advance or take on leadership roles, you put your business at risk of losing talented and ambitious employees. As a business owner, it’s important to realize that every business needs a mix of family and non-family employees to help the company grow.

What to do instead: Identify your company’s weak spots and look to hire outside of the family to fill those spots. This way, you’re freeing up family members’ time to focus on what they’re good at, while also bringing in fresh viewpoints and areas of expertise. Keep an open line of communication and address all concerns quickly.

5. Not Having a Succession Plan

There is going to come a time when you or someone in your business wants to retire or leave. Without a plan in place, your remaining family members might argue over who should run the business in your absence, which is why it’s crucial to include provisions for retirement or sickness in writing. 

What to do instead: Create a succession plan to ensure your business continues to thrive for generations to come. By making the necessary preparations, your family will know exactly where they stand, and you can prevent family business inheritance issues.

We’re Here to Help

You face many challenges as a business owner. Farm Bureau Financial Services understands how hard you’ve worked to build your business, and we want to help you protect it from the uncertainties that life brings. Learn how our business succession planning and small business insurance can help ensure the success of your company!

Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.

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