Partnerships Work Until They Don't
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Partnerships Work Until They Don't

Partnerships Work Until They Don't

Franchising provides turnkey access to owning your own business, and those with an entrepreneurial spirit are attracted to the business model. Friends, spouses, siblings, parents, or other extended family join into partnerships to fulfill their business dreams. 50/50 partnerships are common and each partner puts in the same amount of capital initially and/or there is an arrangement based upon sweat equity.

50/50 partnerships work until they don't. And partnerships with friends, spouses, siblings, parents, children, or other family, work until they don't. Often, unexpressed and mismatched expectations are the root of most issues that arise. This can be mitigated.

Agreements Preclude Disagreements

Whether you are just getting started or are an established multi-unit franchisee, you can create transparency by taking time to dialogue about the possible, probable, and potential issues impacting the partnership relationship or the balance of family and business. Eventually:

  • Family may want to enter the business
  • One of the partners may wish to
    • vacation more and work less
    • grow faster than the other
    • take on more risk

Building the bridge as you walk on it, especially when emotional and business stakes are high, can create big cracks in relationships fundamental to business success and family harmony. Open dialogue and developing governance policies provide agreed-upon expectations of "If this," "This happens." 

Family Member Employment Policy 

Establishes criteria by which family members (or friends) can qualify for employment. Examples include:

  • Education requirements
  • Successful employment outside of the business
  • Availability of an open position with a position description
  • Prior training and experience to qualify for an available position

Compensation and Perks Policy

There are no secrets within a family business. However, there are plenty of assumptions regarding compensation and benefits that can create communication complications among family members.

Questions to consider:

  • Are family members paid based on the market rate for their position in the industry, or are they showing favoritism as a family member?
  • Are all family members paid equally or based on their role?
  • Are their raises based on family needs, or are they consistent with how every other employee gets a raise?
  • What special perks do they receive (such as airline or credit card miles)?
  • Do they get a company car or cell phone?
  • Are they shown favoritism when it comes to time off?

Advancement Policy

Family member employees who take the elevator to the corner office send the wrong message to employees and managers making sacrifices for recognition and advancement

Questions to consider:

  • What is the basis for family member employee advancement within the company?
  • Are they on the fast track to the executive suite, or do they have to earn their way? 
  • How do you distinguish the differences between multiple family members pursuing the same leadership position(s)?

Family Member Performance, Behavior, and Attitude Policy

Because of their family member status, a family member employee generally has unreasonably high or low assumptions about how they are expected to behave and perform. History has shown that distorted perspectives can negatively impact family harmony and business performance in both scenarios if not adequately clarified through performance policies. Examples include:

  • Fulfill all fundamental employment expectations within the Employee Handbook.
  • Be a role model for punctuality, dress, personal hygiene, and conformity to all policies and procedures.
  • Expect to be hired for a job for which you are qualified by training and experience.
  • Accept the compensation and benefits appropriate for your assigned job without whining.

Decision-Making Policy

When emotions run high in a family business, and there are differences of opinion, decision making becomes difficult regardless of who has control. Shareholders ultimately control a business, so the Shareholders Agreement should include a section specifically outlining how critical decisions are made on issues including but not limited to:

  • Changes in officer compensation
  • Engaging in long-term leases
  • Purchases above an expressed amount
  • Borrowing above a defined amount

Stock Ownership Policy

The Stock Ownership Policy clearly defines if family members will receive stock in the business because they are a part of the family or what criteria must be met for them to have the opportunity to own stock.

A family business is an oxymoron. Both entities reflect two opposing philosophies, which can cause problems in the home and at work. Therefore, establishing platforms and performance measures to explain expectations clearly and foster good intra-family communication is crucial to sustaining the unity required to build a solid multi-generational enterprise.

Published: June 27th, 2022

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