Family Owned Business – Defining Family

Family Business is a series of blog posts about the exciting, rewarding, often challenging, and always unique elements of family owned small businesses. No, we are not talking about the Mafia. Family members make great partners, right? Wrong! Read these posts before you risk everything. This post is about the family partnership. Every family business is a partnership. No, not in the legal sense. Regardless of who owns the small business, when family is involved, everything is a negotiation. The first step in navigating the rough waters of family owned small business is to define what exactly makes it a family business. Consider these elements consistent with most small businesses own by family members:
  • The Nuclear Family
  • Shared Interests
  • Influence
The traditional family business is made up of the nuclear family. These are often closely tied blood relatives and descendants. Brothers, sisters, parents, grand parents, and first cousins are the typical nuclear family to be considered in the family business.
This is why the definition of “family” is important. The nuclear family is an effective way to set the boundaries of who has interest and who does not. Shared interests is another effective way to set the boundaries of who has influence in a family business. Sharing a parent with a sibling does not automatically entitle that person to influence in business operations. Shared interests means shared benefit and shared risk. Conflict often occurs when one sibling puts in ten years of hard work and the other shows up in the last six months to claim the fruits of the labor. The wise solution is to measure benefit against the risk and output of each family member. The sphere of influence of each participating family member is an effective way to measure a person’s membership into the family’s small business. Remember that the family exists for the benefit, not only to drain the business resources for personal gain. An effective method for measuring an individual’s control is to measure his influence. Consider what benefit the member brings to the success of the business. The family member may be a distant relative but he may also be a gifted accountant or lawyer which the family business desperately needs.
Finally, regardless of how you define family, the family unit and the business must coexist. If either one fails, the other will fail too. Remember that most small businesses fail in the first five years. Most partnerships also fail. These facts make the family small business twice as challenging. It also makes success that much sweeter. For more excellent guidance on success in small business, check my favorite top 3 sources: No, I do not get paid to promote these links and these guys do not know me personally. What experiences to you have with family owned businesses? Please share your thoughts. 
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