8 Rules for Family Run Businesses

Family businesses can be a blessing or a disaster. The root of a well-run family business is grounded in treating it like a business, not as an extension of the family. Below are guidelines any family business can follow to ensure the business’ success.

1. Have family members work somewhere else first. It is not necessary that it be in an insurance company or agency, although it would be helpful. They must prove to themselves, to you and to the other employees that they can succeed on their own. It also is healthier for the business if they come with fresh ideas and training.

2. Do not expect more or less of them than you would of any other employee. Family members might try harder, or not at all. They need motivation from the boss, just like other employees. Apply all agency rules to family members and adhere strictly to performance evaluations and salary administration. Give family members responsibility and authority as they become ready for it. Give them enough rope to prove themselves, and don’t second-guess their decisions within the parameters of authority you have granted. Avoid the two extremes — either cutting them too much slack or riding them harder than other employees.

3. Do not create a job for a family member. Either you have an opening for which they qualify or you do not. If there is no suitable opening, wait until you need to hire someone and/or they have the appropriate qualifications.

4. Keep family and business issues separate. Never discuss family matters in front of other people in the agency. Use the family member’s name, and try not to call each other dad, mom or junior during business hours. De-emphasize the family relationship when around other employees. Don’t discuss business at family gatherings, because this can put a strain on personal relationships.

5. Keep open lines of communication. Let family members know your perpetuation plans, so they know what you expect from them long before they are old enough to come into the agency. Don’t expect them to read your mind.

6. Never leave the agency to two people (family members or not) on the basis of 50/50 ownership. The buck always has to stop some place. Two siblings can have built-in differences of opinion that make decisions more difficult to handle effectively. It can work in some cases, but these are the exceptions. At a minimum, put one outside person on the board of directors as a deciding vote.

7. Develop an organizational chart that has family members reporting to people other than other family employees. Make sure the other employees understand their relation to the family members, and to whom they are responsible. Just because someone has the same last name as the owner does not mean they have the same authority, and everyone needs to know this. Unclear relationships can cause confusion and dissension, and can cost the agency good employees.

8. Make family members pay for ownership, even if it is at a discount. Most people do not appreciate something they got for free, compared to something they had to earn. The concept is that if they pay for it, or have to sacrifice something for it, they will value it more and do a better job of running the agency. In a similar fashion, children who are not associated with the agency should not be owners, because they might not appreciate what it takes to run the business. Also, keep the IRS in mind. You must properly value the ownership you turn over to family members, either through gifts or cash transactions.