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Buying a business with family: How to avoid World War III

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Family businesses account for a healthy 66 per cent of the UK’s small and medium sized enterprise (SME) population and include many examples of the best of British industry.

With such a substantial share of the business battalion being family-run, you would think that working with blood relatives is a fail-safe strategy for success.

Not so.

Buying and running an enterprise with family members can be rewarding and, yes, there are many perks, but be prepared: a family run business is a sensitive business.

There is a mine-field of problems to be avoided if you take this route, so make sure you employ some protectionist tactics in the early stages of your business to avoid all-out war.

Follow these six peace-keeping policies, and your family business is far more likely be a success:

Choose your commander-in-chief

In any business, the election of a strong leader is vital for progression and employee morale. However, when family members go into business it’s often uncomfortable to decide upon who will have the final say.

Don’t side-step this issue – if you choose to muddle along, hoping that your previous harmonious relationships will transfer into the workplace, you will likely find yourselves at logger-heads at some point, and, at worst, complete paralysis.

Look at inherent skill sets and temperaments (after all, you’ve had a lifetime to recognize them!) and allocate roles accordingly.

Making sure that everyone knows where they stand, and what’s expected of them, is a pre-requisite in any family-run business.

These boundaries will help keep the ugliness of sibling rivalry, or long harboured grievances at bay.

Draw up treaties

Once you have clearly defined the roles within the business, put it in writing.

This may seem pedantic at the time but, in truth, formalized contracts are more important in family businesses than any other kind.

Your familiarity will make for some excellent like-minded decisions and effective brain-storming, but it will also mean you can push each other’s buttons more easily.

With contracts, share-holding, operating procedures and job descriptions all signed and sealed, they can be referred to if and when a bitter row takes place.

Leave these factors to interpretation at your peril.

"You want to be able to preserve the passion and joy of a family business but at the same time you need to thrash out the terms of it too. This is not natural. Even if it pains you do sit down with your children or parents or brothers and subject them and yourself to a dry and soulless contract, it may save a lot of pain in the long run.’" says Marcus Markou, Chairman of Dynamis, the online publishing group behind BusinessesForSale.com. 

Marcus, who owns and runs the business with his brother, and CEO, Andrew Markou, continues: "Put the contract on a shelf to gather dust and hope that you never have to refer to it. But if you do… it’s all there. The agreement. This is what we agreed. Remember?’"

Recruit with care

It’s a common mistake made by a doting parent: creating a position in the business for an errant or directionless child.  (Or actually, any boss paving the way for a jobless relative.)

Employing a family member out of the kindness of your heart is unlikely to go well.

Firstly, your inclination for employing this person will probably be based on altruism rather than her/his suitability for the role.

This will not only ruffle the feathers of other staff members, but could well mean that your new recruit will struggle, make bad decisions and ultimately feel inadequate.

Employers must maintain a level playing field, based on skill and performance.

Co-founders of Banyan Family Business Advisors – Josh Baron and Rob Lachenauer, reiterate this in their blog for the Harvard Business Review:

‘In family businesses, merit-based systems mean both that family employees are in explicit competition for positions with non-family members in the business, and that family members receive supplemental feedback to ensure that they learn and grow.’ 

Wrapping a relative in the cotton-wool of family loyalty, when they haven’t had to earn their position can easily back-fire – in terms of the success of the business and the future prospects of your ‘protégé’, when they eventually hit the real life job market.

Avoid the firing squad

You can’t fire a relative without repercussions. 

No matter how ineffectual a family employee is to the business, the act of dismissal (a standard process in non-family businesses) spells only one thing to the outgoing individual: rejection. 

Where blood ties are involved, the process of ‘letting go’ is painful – it affects all involved on a personal and emotional level and is best avoided at all costs. 

This is the stuff of deep family feuds that can last years.

Make sure, when you bring a relative into the ranks, that your make your performance expectations crystal clear and that communication lines are strong so any problems can be addressed early.

Ideally, only employ a member of your family who you are sure is mature and sensible enough to know when it’s time to go. 

An amicable resignation will always be preferable to a lifetime of awkward Christmas gatherings!

Spot the weakness in your front-line

The close bonds of family can mean that you have a similar outlook on life and that you approach business in the same way.

Whilst this is an advantage when communicating with each other, a united front can be daunting to other employees who want to contribute feedback, or who may have approaches that could improve your business processes.

Relying only on the strength of your familial relationship will actually weaken the structure and prospects of your business.

Try to build a diverse staff with varying skill-sets, cultures and experience and make sure that you listen to their opinions.

Loose lips sink ships

Constructive criticism in the workplace is a standard and useful practice but any kind of critical comment between family members can lead to explosive reactions.

A legitimate observation about an aspect of a relative’s work can quickly degenerate to the point where old grievances are re-visited. 

Let’s face it - we all have an arsenal of ammunition, from years living under the same roof, which could be used to score points against family members.

In family businesses, extra effort must be made to frame practical criticism in a mature and professional context.

And absolutely no rubber band flicking allowed.

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