Family businesses: they seem to work really well or fail miserably.  That’s not to say that family-run businesses can’t be highly rewarding and lucrative.  However, if you’re participating in a family business, it’s important that you understand what you’re up against.  Working with relatives can be tricky unless you have a game plan—a series of rules to live by in order to achieve maximum success.  Here are 5 tips in running an efficient family business:

1. Discourage alliances among family members.  This factor often contributes to the failure of family-run businesses.  When members of a family business begin keeping secrets from certain factions, creating alliances and excluding individuals from crucial business decisions, a division results that can destroy a company.

2. Communicate.  It’s no accident that this tip follows the one discouraging family alliances.  In order to avoid poor business etiquette that can seep into family-run organizations, it’s important to have open lines of communication.  As with any business, you should have regular managerial and staff meetings to ensure that everyone is on the same page.  Also, create email groups so that business correspondence is sure to travel to all vested parties. 

3. Only hire qualified relatives.  Family-run businesses can become the island of misfit employees if you’re not careful.  They are often the go-to business when Cousin Joe is down on his luck again, and your relatives believe you certainly have something that can keep him busy and employed.  Don’t get caught in that trap!  Just like any other viable business, you must hire qualified and trustworthy employees.  Hard as it may be, you shouldn’t lower your expectations in order to hire relatives.

4. Have a succession plan.  You may think you or your father or your great uncle Richard will run the company indefinitely, but the truth is, situations and circumstances change, and a company will be more likely to survive those changes if a succession plan is firmly in place.  You should go through proper legal channels to ensure your succession plan is solid.

5. Avoid arbitrary compensation plans.  Employees should be paid according to their expertise and overall company contribution.  If Cousin Joe, the guy who’s down on his luck, begins making more than a long-term employee with considerable expertise and experience, one could argue that this relative is receiving preferential treatment.  Don’t put yourself in such a precarious legal and ethical position.  Create a compensation chart, with the help of a professional if necessary, and follow it strictly.

Family businesses can be lucrative and fulfilling ventures, but only when handled properly.  Take the necessary precautions to ensure that your family business is in the best position to succeed, with all those involved.

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