How to Deal with Common Disputes of Family Owned Businesses

There are many advantages to family owned businesses. When things go the way that you envision them, your family works together toward common business and family goals. You trust each other and provide each other with the flexibility to succeed financially and personally. However, things don’t always go as planned and disputes are common in family owned businesses.

Common Problems for Family Owned Businesses

Some of the challenges frequently seen among family owned businesses include:

  • Conflicts driven by emotion: working with relatives is more emotional than working with unrelated colleagues. Years of emotion can go into every interaction.
  • Employing relatives without regard to their capabilities or talents: you may hire your son in law or lazy cousin because it is in the best interest of the family even if you don’t think it is in the best of the business.

How to Solve Common Family Business Problems

While it is trickier to solve family business problems than other types of business problems, it is not impossible. The following actions can help you prevent many family business problems and resolve problems that have already occurred. Specifically:

  • Clearly Written Directions for Decision Making: the chain of command should be clear and every employee should be aware of it. This can help, for example, when a daughter is the company’s manager and her father is an employee or silent investor. If the daughter wants to make a decision that is in conflict with the father’s point of view then the daughter may struggle between her role as a child and as a manager. Clearly written guidelines that give the daughter the authority it to make decisions can result in the daughter making the decision that she believes is best for the company without regard for family feelings.
  • Clearly Written Job Responsibilities: each employee should be provided with a copy of the job responsibilities for his or her position. If the employee is not fulfilling those responsibilities then management has a responsibility to fire that employee, even if the employee is a relative. Clearly written job guidelines can make the firing less personal and more objective.
  • Hire at Least one Nonfamily Member in a Position of Management: this person should have no pre-existing allegiance to any member of the family and should be objective. This person should have strong managerial and business skills and be strong enough to stay out of family squabbles.
  • Plan for the Next Generation of Leadership: if the family members in charge of the business are ill or nearing retirement then the family should plan in advance who will take over the business. Do not wait for a crisis to strike. Losing a parent is emotionally difficult and a time when you should grieve with your family rather than fight with your siblings and cousins about who is going to run the business.
  • Keep the Lines of Communication Open and at Work: have regular meetings so that everyone understands what is going on with the business but only discuss work at work. Likewise, many families find it beneficial to keep talk of family matters outside of the workplace.
  • Hire Outside Consultants: the objectivity of unrelated outside consultants can provide clarity to a family owned business. For example, a business coach can help you develop ideas and strategies to further your business, a lawyer can help you develop policies and procedures and an accountant can advise you on legal matters.

In order to maximize the gains of owning a family business it is important to be aware of the potential problems and to actively deal with disputes for the good of your family and your business.

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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