6 Tips on Making a Family Business Partnership Work

Family business partnerships are unique. While they offer the advantage of shared history, trust, and a common bond, they also bring challenges that require a thoughtful approach. Yes, there are unique hurdles that differ from other types of business models, but with the right attitude and a sincere willingness to share in the responsibilities, family business partnerships can and do work—all the time.

Keys to Making a Family Business Work

Here are some key principles and actionable insights to help you build a robust family business partnership:

1. Establish Shared Values and Vision

Why It Matters:
A strong foundation of shared values and vision ensures that all partners are working toward the same goals. In a family setting, personal relationships add a layer of complexity; differing visions or personal ambitions can quickly create conflict if not aligned from the start.

Actionable Tips:

• Have Open Discussions: Before you draft any formal documents, sit down with your family members to discuss your individual dreams, long-term goals, and personal definitions of success.
• Develop a Vision Statement: Create a clear, concise vision statement that encapsulates the aspirations and values of your business.
• Revisit Regularly: As the business evolves, make it a point to revisit your shared vision and adjust it as needed.

Example: A family that starts a local café might agree that the business is not only about profit but also about community involvement, quality service, and supporting local farmers. This shared vision helps guide decisions even when tough choices arise.

2. Decide on the right type of business organization.

Why It Matters:
The type of business organization you have will affect your legal responsibilities, tax liabilities, and overall management structure. Each option—whether it’s a general partnership, limited partnership, limited liability partnership (LLP), C corporation, or S corporation—offers different benefits and drawbacks.

Actionable Tips:

• Consult Professionals: Engage with legal experts and financial advisors who can help you understand the implications of each structure based on your family’s specific circumstances.
• Assess Risks and Benefits: Consider factors like liability protection, ease of raising capital, and management flexibility.
• Plan for the Future: Choose a structure that accommodates growth and future changes in the family dynamics.

Example: A family involved in a manufacturing business might choose an LLP to protect individual members from personal liability while still enjoying the flexibility of a partnership arrangement.

3. Define roles in a clear, authoritative manner.

Why It Matters:
Blurring the lines between personal and professional roles is a common pitfall in family businesses. Clear, well-defined roles ensure that everyone knows what is expected of them and can help prevent overlap and potential conflicts.

Actionable Tips:

• Create an Organizational Chart: Outline who is responsible for what areas of the business. Include job descriptions and reporting lines.
• Set Boundaries: Define areas of authority so that each partner’s responsibilities are distinct and accountability is clear.
• Review and Adjust: As the business grows, roles may need to evolve. Regular reviews can ensure that responsibilities remain aligned with the business’s needs.

Example: In a family-run retail business, one member might handle operations while another manages marketing and customer relations. This division of labor not only plays to individual strengths but also minimizes misunderstandings.

4. Put everything in writing.

Why It Matters:
While family ties may encourage a belief in implicit understanding, the lack of formal agreements can lead to misunderstandings when disputes arise. A well-drafted agreement acts as a reference point, protecting both personal relationships and the business itself.

Actionable Tips:

• An effective written agreement outlines:

• • The structure of the business
  • Family members’ percentage ownership of the business
  • Planned financial contributions
  • Individual roles within the business (and relevant responsibilities)
  • How decisions about the business will be made
  • What must happen should a family member leave the business

Having all of this in writing (as opposed to waiting until a problem occurs) represents a huge step forward in effectively managing a family business partnership.

• Outline Exit Strategies: Plan for potential scenarios such as one family member wanting to leave, what happens in case of death or divorce, and how disputes will be resolved.
• Legal Validation: Have the agreement reviewed and notarized by a legal professional to ensure its enforceability.

Example: A family running a consultancy might include clauses that specify how profits are shared, how disputes are mediated (perhaps through a third-party mediator), and what procedures to follow if a partner wishes to exit the business.

5. Put emotions aside.

Why It Matters:
Family businesses are susceptible to the influence of personal emotions, which can cloud judgment and complicate decision-making. Maintaining a professional mindset is essential to ensure the business remains the priority.

Actionable Tips:

• Separate Business from Personal Life: Create distinct boundaries between family interactions and business meetings.
• Adopt Professional Practices: Treat business discussions with the same rigor as you would in a non-family corporate environment.
• Consider Professional Mediation: If emotional conflicts arise, a neutral third-party mediator can help resolve disputes without damaging family relationships.

Example: A family might schedule regular, agenda-driven business meetings separate from social gatherings to ensure discussions remain focused on the business’s needs rather than personal issues.

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6. Practice honesty and transparency.

Why It Matters:
Transparency builds trust and ensures that all partners are informed about the business’s operations and financial health. In a family business, where personal relationships can blur professional boundaries, establishing clear communication is even more crucial.

Actionable Tips:

• Regular Reporting: Implement regular reporting systems and meetings where each partner shares updates on their areas of responsibility.
• Foster Open Communication: Encourage all family members to voice concerns and share insights without fear of reprisal.
• Document Decisions: Keeping a written record of major decisions helps in maintaining accountability and serves as a reference in case disagreements occur.

Example: A family business in the hospitality industry might use monthly performance reviews and financial reports to ensure every partner is on the same page regarding the business’s performance and strategy.

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As we have noted before, Family business challenges can seem insurmountable at times, but sharing the business ownership experience with your family members can be a very enriching experience.” The process requires diligence and commitment. After that, the sky’s the limit! Through advisory boards and strategic planning experiences, The Alternative Board can provide you and your family's business expertise and support to take you to the next level. Find a local board today.

Why do some businesses thrive and others barely survive? Learn the 5 ways business leaders seize opportunities during difficult times here