Family Business Ties: Good, Bad, or Ugly?

by | May 5, 2016 | Exit Planning

I was raised in a family business. As the eldest son I experienced the Good, the Bad, and the Ugly!  I’ve also had the pleasure and opportunity of working with family owned-business over the last twenty years.

Many of their stories go something like this: Once upon a time there was an energetic, creative entrepreneur, who took great pride and passion in the work! A thriving business developed over the years. He passed his business knowledge and enthusiasm on to a child, who continued to tend it well and even made it grow. The child grew older and his children—two sons and a daughter—began to look at the family business, as well as their own futures.

Where does the story of your family business go? Many business owners put off decisions about the future, believing in the “happily ever after” scenario—that all family members will be dealt with “fairly” when the need arises, and that all will be dedicated to the continuation of the business. Family dynamics can go in many directions that can have bad consequences for the business AND the family.

The Good

There are many positive aspects of being part of a family business. Relative job security, control over your destiny, and financial benefits are three just that come to mind.

Other “positives” include less public scrutiny and more privacy from competitors, as well as less concern regarding takeover possibilities. The business may reflect the strong personality of the owner and his or her commitment, which can (but not always!) be another “plus.” Employees may even be more loyal and appreciative of reduced bureaucracy than might be the case in a larger, more bureaucratic firm. And family members who have grown up in the business may bring a level of management competence otherwise unavailable.

The Bad

There is also a possibility that decisions in a family business may be made on an emotional basis rather than on sound, practical business sense. Family members may feel uncomfortable voicing their opinions to parents or siblings. One member may take advantage of the family structure and create underlying tensions that hurt the business (and the family)! Job security can become nepotism, leaving valued non-family employees feeling underutilized and overlooked. Family members may take advantage of their financial positions within the company, such as using business reserves for personal needs.

The owner may have difficulty planning for the day when he or she will leave the business, thus avoiding decisions about the future and leaving all employees—family and non-family alike—unsure of their futures.

In addition, family members not involved in the business may become involved during an ownership succession. This could go either way for the overall health of the business as well as for family relations.

How to Avoid the Ugly

The first step is to recognize that, as the owner of a family business, you have a dual responsibility: 1) to your family and their future security; and 2) to the business that provides a livelihood for many. Once recognized, both responsibilities can be planned for, typically with solutions that will support each other. And that you can’t do it yourself and run your business.

Adviser Roles – No Single Perspective Suffices

No one adviser can do it all for you. However, a knowledgeable financial professional experienced in business succession, can guide you and coordinate your team of advisers so the right solutions are in place to protect your business and your family’s future. The range of some considerations may include: financial, tax, and estate planning, investment and diversification, retirement and income planning, business valuation, various insurance protection, buy-sell agreements, or establishing a family council.

Building a successful and enduring family business is a great accomplishment. Proper planning can help to preserve and protect the legacy you’ve built so the happy [ending]….succession becomes a reality!

Jerry Matecun helps business owners examine a range of personal, business, emotional, and financial issues related to their readiness to exit. For a no cost, confidential conversation regarding your business valuation needs call or email Jerry at 949-273-4200, 616-499-2000, or

PLEASE NOTE: Nothing herein or elsewhere on this site constitutes investment, legal, or tax advice. For details please see Disclosure.

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