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Should You Allow Family Members Into Your Business?

written by: •edited by: Jean Scheid•updated: 6/24/2011

Allowing family members to become part of your business, whether they are co-owners or employees can often be difficult. Jean Scheid looks at the pros and cons of having family members be a part of your business.

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    Family Members: The Pros

    Freshly Made by Argon One America was built on the family business. Often, many new entrepreneurs who lack enough capital to start a business will invite a family member to join and provide necessary cash. This can work out well if you follow certain guidelines:

    Put your family partnership or corporation in writing. Just as with any other corporation, assign officers, roles, titles, and stock shares. Be specific on who has money authority and try not to put too many cooks in the kitchen. Agree to have one person in charge of the day-to-day financial records and company bookkeeping. Write a business plan together.

    If you hire family members to work at the business, keep it fair. Don't play favoritism and only increase pay if deserved.

    Chances are the family member you invite into your business is someone you trust. That can be a good thing so don't lose that trust by not keeping them informed of business happenings.

    A family partnership can provide a sense of security with both income and expenses being shared. In your initial business plan or agreement, clearly state how income and profits will handled and agree on one accountant.

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    Family Members: The Cons

    There can be cons if you invite family members into your business that can put large strains on relationships that took many years to build. Try and avoid these strains by following these tips:

    Recognize just because you work one way, your family member might work another way. Find this out upfront and agree to compromises you can both live with. If you don't, you could end up arguing. Arguing and unhealthy work eithics or habits can ruin a business.

    Don't hire every family member who needs a job. If you try and be an employer holding company for all of your relatives, you could end up with some bad apples. Only hire family members that have the skills you need and perform as directed.

    Keep your communication clear with family members in your business. Agree to hold weekly meetings to keep all apprised and try and avoid talking about the business during family events.

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    The Bottom Line

    Although America was founded on family businesses, before you enter into a business agreement with a family member, ask about their finances, commitment, availability, and have a discussion on business goals and ideals.

    Don't try and write a family business agreement on your own. Put your trust in an attorney so that everyone's interests are protected fairly.

    If one family member is an investor only and the other family member receives wages from the business, make sure if the business has a successful year, the investor family member receives his or her share of the profits. Have your attorney or accountant put this type of relationship in writing.

    Don't try and pay personal expenses such as home mortgages, utility bills, or credit card bills from business checking accounts. Not only is this illegal, it probably wouldn't be done in a fair way. This is a sure fire way to ruin a business.

    As your family business grows and perhaps allows for more family members to enter, reflect back on what worked and what didn't work. Give new family members the same opportunity.

    A successful family business is one where everything is in writing, partners share in both income and expenses, and keep their hands away from cash accounts.

    Should you go into business with a family member? Absolutely, but be fair, open, honest, and try and be true joint partners in all business aspects.