B. Smith of Wealth and Wisdom, recently put a lot of thought into a touchy topic: what to do if your family asks for money.
His article leads with a common misconception about entrepreneurs: family members think that just because we are in business for ourselves we must be loaded. He writes:
“For entrepreneurs it can be even worse. People assume that just because you own the company that you are rich and that they are entitled. You can easily become their personal bank … or their welfare system.”
Smith shares 7 tips for how to handle this delicate situation when you are asked for money, all of them good ones. His point number 3 really hit struck a nerve with me: “Separate emotion from fact.”
The same principle could apply to family members who ask for jobs from entrepreneurs.
When I worked on the franchise side of Pearle Vision I encountered situations where owners hired family members to work in their stores. It was with a sense of duty that my franchisees would take on family members — giving them a job and in too many cases beginning the downward slide of their profitability.
It was difficult — almost impossible — to separate the emotion of being related to the fact that perhaps they weren’t the best employee for the business. In one horrific experience two members of the same family went into business together — 50/50. When the situation went south, the ugly battles began.
Smith’s tips for dealing with this highly charged situation of family and money resonate when it comes to family members in your business. As difficult as it sounds — you have to separate the emotion from the fact and truly assess what is best for your business.
In the case of going into business together with a family member: make sure someone owns 51%. You!
Coming from an industry where, often, kids take up their parent’s creation, this makes me even more likely to push the kids into anything but the family business.
That is a really good article. Some of these things have come up for me and I never know what the best way to react is. I definitely have been hit with #1 before. Some people are really good at laying on the guilt. It’s really hard to deal with but I just stick to my guns and remember that their problems don’t have to be mine. They need to own their own problems and responsibilities.
Don’t get me wrong, if a family member who is normally responsible just falls on hard times; I would help in an instant.
We own 2 small businesses and have hired 13 friends, family and friends we went to church with over the course of 3 years. ALL went south. But we just kept thinking that THIS ONE would be different. (Slow learners!)
Some of our church folk that have never spoken (other than an occassional “HELLO”) seek us out when they need work. If they are really down and out, we will give them a “one-shot deal” (cutting the grass this week, etc.), but we always say, “Sorry…we’ve found that hiring friends or family just can make things really weird, and we like you too much to have that happen between us.”
Needless to say, it’s a lot better to hire well-screened strangers. And it’s a whole lot better for the social life too!
Just as a reminder-in case you are wondering-when friend and family hires go bad, they ALWAYS contaminate the other friends and family that you both have in common.
Amanda
Jessica, You make a really good point that a bad relationship goes way beyond just being between you and that 1 person. That’s another reason why you really need to think hard about hiring or lending family money. It can ruin several relationships at once.
Chris
I have to admit that I’ve seen this happen (borrowing money) within my own extended family and it makes things very difficult. The reason is that even if you help and lend the money, usually, the person doing the asking has numerous troubles and if you lend once, they’ll come back to you to aid them with the balance of their financial troubles, too.
In a situation where someone has an instance that sends them into hard times, I would definitely lend a hand. But if it’s a family member that has numerous financial troubles and doesn’t do anything to help themselves out of the situation (like getting a job when you’re able to work, preparing for your future by making sound financial decisions) I can’t condone that and helping them once only puts a bandaid on the situation. What good does it do to help someone who won’t work when they are able and who doesn’t make wise decisions with money anyway? They’re only going to end up in that situation again and again and again.
On the other hand, I’ve seen two family run businesses experience a lot of success by having family members as employees as well. I think it’s more about the family members as individual people – rather than simply painting them with the “family” brush and assuming it’ll lead to trouble. If your family members are responsible individuals that make (or at least attempt to) wise decisions, don’t take advantage and work hard – then they shouldn’t be left out simply because they’re family.
And when it’s YOUR family . . . honestly, you know who the wise, responsible ones are – and the one’s who are not. It’s more about the individual rather than the “family” label in my opinion.
muvar
Thanks for the tips!
Rgds
muvar
Excellent response Chris. The bottom line is that we as business owners need to make good emotionless hiring decisions all the time, no matter whether the prospect is a family member or a friend.
In my opinion, we are at an advantage when it comes to considering a family member or a friend for a job. We know more about them, their strengths, their weaknesses, and whether they are fit for the job or not. It is hard to get so much insight into an unknown candidate, even with rigorous interviews.
I do agree with the point in the article that in case things don’t work out, the toll on relationships could be huge. It could indeed damage several relationships and I have seen that happening time and again. But these were primarily the outcome of poor and emotional hiring decisions. Essentially, one needs to balance the risk with the upside of familiarity.
One approach that has worked well for me in the past and for some other family owned businesses that I know of is to provide coaching to friends and family members on the job while setting proper expectations. Opportunity to find a good coach is usually hard to come by and this is where business owners can help their friends and family members a great deal – coach them to become great employees.
eric
Some owners of companies, hire family and friends because they need to, while others do that, for tax reasons or other benefits. Whatever the reason, the use of a family member or a friend has advantages and disadvantages. If you think of hiring anyone close to your heart, it is important to look at the advantages and disadvantages, so you’ll have the right management processes.
The hiring of friends or family members can have a positive experience, but beware of employees who try to take advantage of a friend or family. Example: A friend / employee leaves from work early several times per month, the member of the family/employee might think that it is normal because of the situation.
One of the most difficult situations, it is sent to you by the discipline or even to terminate a family member or a friend. Even if its a wise move for the business, there’s a lot of bad feeling from family members or friends, they may not understand the situation and think that you have acted unfairly. This can be a lot of stress on the personal and professional side of the biz owner, which may have a negative impact on your ability to run the company.
Martin Lindeskog
I have worked for a family owned company. It could work well, but as the saying goes: The first generation start the company and build the foundation, the second generation develop it and the third generation crash the company…
Chilam
It’s tough to have family mambers who don’t understand that fact that you gave them a job and acted like a boss and always demand for more pay when they see that you have some profits. They think that you owe them big time even though they get paid very well and they don’t perform their job and get lazy, leave earrly and close your store early.