As the business and family evolve, newer and newer challenges emerge for the business owners, many times they are not equipped to handle those challenges and things can get complicated.

While hiring an employee, we typically enter into specific agreements that specify their role, responsibilities, and deliverables from them against the compensation that they will draw. However, family-owned businesses often ignore the need to have a formal agreement with family members who work for or otherwise are affiliated with the family business. Having agreements clarifying the roles, responsibilities, decision-making process through a contract with family members can make life easy for the business as well as for the person managing a certain portfolio.

But We are Family…

We always feel that when we are family, we are responsible for everything under the sun that goes on in the family business.

When the business also starts growing and becomes a multi-location, multi-product, multi-market entity; it is impossible to be present everywhere and give directions.  For employees working in the family business, they need direction from one direct boss to get things done. Life is miserable when an employee starts receiving multiple instructions from multiple family members to manage the same activity. It fosters chaos rather than order and simple things get overly complicated and delayed, which leads to nothing but miscommunication and frustration.

A simple written agreement specifying the requirements from the family member actively occupying a business position makes clear what is expected from the family member and makes them responsible for deleveraging the desired results in their functional area. It is a binding agreement that lays down the ground rules for the business. It also describes the consequences to follow when the contract is broken.

Family Business Contracts helps the Business Function Professionally

The overall goal of a family business contract is to promote a professional business atmosphere, give clarity to employees and external stakeholders about who is responsible for what and avoid unnecessary communication. Businesses with non-family members use contracts, so it’s only natural that a family-owned business should reap the benefits of this type of arrangement.

Family business contracts can be used to administer the following:

• Employment Terms
• Job descriptions, Responsibilities and Authorities
• Compensation details
• Expected performance, performance review, and consequences for underperformance
• Escalations and Communication expectations
• Rules on disclosure of family business matters to non-family members and others not affiliated with the business

Contracts Provide a Basis for Agreement and Order

Family Business Contracts serve as a useful tool for specifying a clear understanding among family members. When a contract is written and signed it creates sanctity. Each involved party is provided with written expectations. When expectations are in writing, they become more defined. Well-defined guidelines are simpler than verbal guidelines to follow and to enforce.

Does Your Family Business Need Help?

With extensive hands-on experience in assisting family businesses, we understand the challenges families face as they work together to build a thriving family business generation after generation. Through orientation programs, one to one and group meetings, workshops, public talks, mentoring, coaching, family retreats, and private family business consulting services, we help family business owners chart their way through family business issues of all shapes and sizes.