Family-owned businesses are all around us. Nearly 62% of the U.S. workforce (approximately 82 million people) is employed by a family-owned business, which also generates 64% of the United States’ GDP, according to research by FamilyBusiness.org. Growing up in a three-generation family-owned business, I have been a huge supporter of them. Since this article series focuses on profitability, let’s examine some of the pros and potential issues with family-owned businesses that owners need to navigate to maximize profits.

Pros

Trust: To me, this is the most significant benefit. For the 25-plus years I ran my distributorship, my wife was 100% in charge of all the accounting and financial decisions. She watched every outgoing dollar like a hawk. Whom could I trust with money more than my life partner?

Quick decision-making: Since it was just the two of us who managed the business with no overlap of responsibilities, the decision-making process was swift, efficient and without conflict. There were no lengthy meetings, approval processes or red tape. This eliminated any delays or employee frustrations, thus making them more productive and positively affecting the company’s profitability.

Building your family legacy: In a family-owned business, you get to work with the people you love the most, and eventually have a succession plan in place to pass the business over to your heirs who can preserve and build your personal and financial legacy.

Potential Issues

Blurring the line of leadership hierarchy: Problems arise in family-owned businesses when every family member feels they are the boss. If there’s clarity among employees on leadership, it can result in satisfaction, non-duplication of work, effort and wasted resources. Another issue I see a lot is sibling rivalry. When siblings compete or, worse yet, sabotage each other’s actions, it can result in the demise of the entire enterprise.

Mixing business and personal lives: Sometimes it’s hard for family members to keep their disagreements and squabbles at home. When they have a yelling match in front of employees and, worse, in front of customers, it makes it difficult for staff to work in that unhealthy environment. Make sure professionalism is always maintained. I’ve also seen family members acting with a sense of entitlement. They expect to take advantage of all the privileges of joining their parent’s business without working or holding up their end of the bargain.

Not encouraging active participation from all: A parent who starts a business may view it as their own baby and be reluctant to listen to the ideas presented by younger family members. This can result in frustration and hostility, diminishing the motivation of others to work hard or work there at all. In addition, such a situation can lessen their push to bring innovative and value-added solutions.

Nepotism: This is a significant issue that causes discontent and loss of morale among employees. The owners’ family members enjoy many more perks and get undeserved promotions. If you’re looking to fill a position at your company and one of your family members is out of a job, that doesn’t mean, in your desire to help them, you hire that person if they don’t meet the necessary qualifications. Not only are you potentially hurting your company’s profitability, but you’re also doing a disservice to that family member. If you want to help, let them shadow one of your staff members. As they get trained and meet the job requirements, you could consider offering them a position. If not, their newly learned skills could also open doors at other organizations.

Roles not clearly defined: All family members must have a job description. They should be evaluated just like the rest of the team. Their compensation must be in line with others. Underperformers should be shown the door. That helps your company’s bottom line and conveys that the management is fair, and nobody is above the set rules.

One example: A husband and wife team, after running their business successfully for decades, handed over the company’s reins to their only son as they aged and moved away. The son inherited that multimillion-dollar business without having to work hard for it. The problem was he didn’t have the “need” to hustle all his adult life; he didn’t have any motivation to work hard. The business was profitable but slipped into the red within five years of his taking it over. This was the direct result of his wasteful spending habits. He used the business profits for his personal wants and those of his friends. This, unfortunately, happens more often than we imagine. Therefore, it’s incumbent on you to evaluate the proper heir to the business throne based on their skills, work ethic, commitment, sweat equity, financial investment, and long-term goals for the business.