How to grow your family business

Small Business Guides

6 min read

Working with family members presents unique advantages, and unique challenges. If you've built up your own business, now might be the time to bring in other family members. Here’s how to avoid some of the pitfalls.

The benefits of keeping it in the family

It's unusual to see ‘Smith & Sons’ or similar business names these days. But that doesn't mean the family business is a dying breed. On the contrary, family businesses are thriving. In a recent PwC report, three-quarters of family firms grew in the previous year. That's much higher than the average for all business types.

Keeping your business in the family has obvious appeal, whether you work with siblings, parents or children.

  • Your family will stick with you through the hard times.

  • You know your family well.

  • You and your family often share common goals.

  • Working with family can be emotionally rewarding and satisfying.

But working with family can also get complicated. Family businesses can lead to emotional stress and arguments. They can even cause legal disputes.

So if you're thinking of expanding your business while keeping it in the family, it pays to plan ahead.

Interviewing interested family members

You should always take the hiring process seriously. Interview each applicant – family and non-family – to find out what they can bring to your business. In particular, look for skills and experience that are different to your own. You're less likely to argue if you have complementary abilities.

Make sure you create opportunities for people who have worked outside the family firm to contribute their fresh perspective and new ideas.

It’s important to be as objective as possible through all of this. Be honest with yourself. If you’re worried you could clash with a family member, don’t feel obliged to hire them. If you make the wrong decision, it could damage not just your business, but also your family ties.

Be fair to all your employees

Before you think about hiring more family members, spare a thought for those employees who are outside the family. As the business owner, you have a duty to be fair to all of your employees – not just your relatives.

  • Leave emotion out of your employment decisions.

  • Consider whether the family member will fit in well.

  • Don't show favouritism to anyone.

  • Don't pay family staff more than other employees in equivalent positions.

  • Promote your best people, whoever they are.

  • Treat all your employees equally and fairly.

This isn't just an exercise in good moral behaviour. It's important if you want to get the best out of all your employees. If you don't treat your staff fairly, employees can become demotivated or leave, which will cost you money. Whether you’re related to your employees or not, treat everyone as members of your wider business family.

Set clear expectations with everyone

Imagine your cousin hasn't worked for 10 years and asks to be employed at your family firm. Do you take a risk simply because they’re family? Or perhaps you’ve employed your nephew, but he's careless and unpunctual. What do you do?

If you want your business to thrive, you need to be as strict with your family as you would be with any other employee. Regardless of the size of your family business, unproductive workers can hurt its efficiency and reputation. Act positively and keep your business lean and efficient.

As the business owner, you have a duty to be fair to all of your employees – not just your relatives.

Keep emotion out of the family business

A family firm is dominated by two strong forces: emotions and commerce. Unfortunately these can sometimes pull in opposite directions. You may find yourself on the other side of a business argument to someone you dearly love, which can be stressful and awkward.

Only you know whether being right is more important than risking a family feud. There's no easy answer. But business decisions taken for emotional reasons rarely work out well.

Just as the boardroom should be free of emotional ties, so your family time should be free of business worries. Don't take your work home with you, especially if you live with the people you work with.

Make an agreement with your family that you won't talk about business at home. Or if you operate from your home, agree the hours that are work free. It may be hard to stick to this sometimes, but it's vital for everyone's happiness.

Stay firm on finances

A family business must be run with the same level of financial responsibility as any other. You may need to hold family members accountable for bringing in revenue or keeping expenses down. It can be difficult to do this with a close relative.

The best way to keep emotions from creeping in is to use hard data. Use charts and graphs that make trends clear – so there’s no argument over interpretation.

You’ll also need to decide how open the books are to members of the family. Once you’ve decided who sees what, stick to it. Use accounting software to set access levels for each staff member and lock them out of confidential information. 

An accountant can help you manage finances in a family business. They will help you make impartial decisions, and can be trusted by family members as an independent voice. 

Be fair to your children

Take the time to factor inheritance planning into your business strategy. Let's say you have two children. One child is much more business-minded than the other, so you decide this child will inherit your business. But how will the other child feel? How will you compensate them fairly?

Poor inheritance planning causes resentment, not just between you and the child who feels left out, but also between the two of them. So talk to your accountant and lawyer for advice. Talk to your children too. Explain your thoughts and work together to find a fair solution.

Remember that your children may have a different perspective to you. You probably sweated and toiled to build up your business, but they may not feel the same level of commitment. They may not understand the finances or the difficulties involved, and will likely have less of an emotional connection to the family business.

By some estimates, around a third of businesses fail when handed down to the next generation. Plan carefully and communicate openly with your chosen successor to prevent that happening.

Make rules and stick to them

It's easy to drift into uncomfortable or unprofessional situations when running a family business. You can reduce the risk by drawing up a list of rules.

Write down:

  • the business goals

  • each family member’s responsibilities

  • guidelines for appropriate communication

Make it clear that favouritism will be avoided and that emotional decision-making is unacceptable. Add any other rules necessary for the smooth running of the business. Maybe you’ll only hire family members who’ve worked outside the family business for at least five years, for instance.

Ask each person to sign a copy of the rules to show they accept them. Then they'll know you're serious about running the family firm in the best possible way.

A question of balance

Balancing family life with work pressures is hard at the best of times. Combining family and business is even harder. But it's worth the effort.

Family firms are some of the strongest, most profitable and dynamic businesses of all. With good planning and the right attitude, you can grow your business and keep your family happy.