Top 5 Mistakes When Running A Family-Owned Business

Working with family members poses its own set of risks. Learn what not to do from owners of successful family-run businesses.
July 01, 2011

Every time I think of a family-owned business, my mind goes straight to the scene in The Godfather where Robert Duvall says, "This is business, not personal," to which James Caan responds by throwing a fit.

This is an obvious (and fictitious) stereotype of a family business—dysfunctional and dangerous. In reality, there are thousands of successful family businesses—responsible for scores of jobs and the advancement of many industries (retail: Waltons; real estate: Trumps; cars: Fords; hotels: Hiltons and Marriotts; media: Hearsts).

But back to The Godfather reference—it can be awfully difficult to distinguish between business matters and personal matters in a family business. According to Jerry Gluntz, general manager of Louis Glunz Beer, a beer distributor in Lincolnwood, Illinois (founded in 1888 by his great grandfather), mixing business and personal matters can be a major mistake when running a family business.

“When you work together, you need to respect each other’s boundaries, and when you argue, argue constructively—don’t hit below the belt and yell about things in your personal life that happened 10 years ago,” he says.

This isn’t always easy. After all, your co-worker (ahem, brother) potentially knows you better than anyone else and can easily push your buttons.

Megan Heine, owner (with her husband) of Brockton Villa Restaurant and Beaumont’s Eatery, both located in La Jolla, California, says family-owned business owners often make the mistake of bringing business home.

“Owning a family business can be really consuming in terms of your family time, and social life—you are thinking about it all the time,” she says.

Heine recommends designating time with your family where business talk is not allowed.

“We try to schedule our meetings outside the home, in an office—those are the places where we talk about business and our decision making happens,” Heine says.

As the owner of a successful family-owned business, you may find yourself assuming your children will want to join the ranks when they come of age. According to Heine, this is another mistake.

She recommends waiting for your child to initiate interest in the business; forcing it can backfire.

“If your child shows an interest, give them a little responsibility, but make sure they feel that they have an option to join or not—I recommend keeping the lines of communication open at all times,” Heine says.

Exhibiting feelings of entitlement is an additional mistake, according to Gluntz.

“Just because a person’s name matches the name on the door, doesn’t mean they are qualified to do the job,” he says.

He recommends making sure each employee is someone you’d hire even if they weren’t part of the family. This qualification will help earn the respect of employees, many of whom won't be family members.

Lastly, we’ve all heard horror stories of money tearing a family apart—be it from inheritance or business. Heine says that relying on loose financial agreements can be a major mistake in a family company setting.

“If you are buying a portion of the business, have an attorney draw up sales contracts and make it legal—don’t think things will just work themselves out—that can cause huge problems in the future,” she says.