5 Family Business Mistakes to Avoid

Forming a business with your family members can be a rewarding experience that is profitable for everyone involved, but many things should be considered. When getting into business with family, a variety of situations can cause the business to have financial difficulty, non-family employees to become resentful and disappointed, and a number of other things. Treat your family business as a business, regardless of how many relatives are working with you. The following is a list of the most common family business mistakes you should aim to avoid.

1) Mixing family finances with business finances. When you decide to form a family business, it can often be difficult to keep your business and family separate. However, in regard to your finances, this distinction is crucial. The last thing you want is for your business to go under and cause everyone involved to go bankrupt because of poor financial decisions. Do your best to keep your business finances completely separate from your family finances, such as forming an LLC that offers personal liability protection.

2) Mixing personal family issues with business issues. Just because you have family members working for you or with you doesn’t mean they should get preferential treatment over workers who are not related to you.  Keep your family and personal life separate while at work. All employees should be treated fairly and be equals, regardless of the fact that some of your staff is family.

3) Failure to obtain a business license.
Many family businesses are small operations that are based at home, and therefore business owners don’t feel that licensing is important. But regardless of the size, type, or location of your business, you have to obtain a proper business license and permit. Each state has specific requirements for opening a business in regards to licensing and tax details, to which your local government offices will have details. Don’t risk the harsh fines associated with running a business that is not properly licensed.

4) Lack of written employment agreements.
When forming a family business, it can be easy to forget about legal documents and employment agreements as it seems unnecessary. However if you don’t do this during the early stages of starting your business, you might soon learn the consequences are a lot worse than the agreements. If you plan to start a family business, get everything in writing, including job descriptions, finances, wages, operations, and disbanding.

5) Lack of a succession transition plan.You may not want to think about what would happen if the business owner passes away, but in a business it needs to be discussed. You don’t want your family business to go under because the business owner died and there was no succession plan in place. Choose an individual who will take over the business, and begin getting them involved in every aspect of the business. This person will need to be aware of the business operations, finances, inventory, payroll, suppliers, and every other detail about how the business is run.


Your family business can become a profitable company as long as you take the necessary steps to ensure it remains a professional situation, and avoid many of these common family business mistakes. Whether your employees are family members, friends, or people you just met, all of the same rules apply.