How Children Successfully Join Family Businesses

Seven key considerations

By Josh Patrick

Key Takeaways:

  • Have a family business constitution in place before your children join your business.
  • Make sure you allow your children to make and learn from their mistakes.
  • Have your children successfully work outside your business before letting them start work at your company.
  • Have someone other than you supervise and manage your children when they work for your business.

Your client, maybe even you, may have worked very hard to build a successful business. The dream has been to have children join the business and continue the legacy that the founder started.

But before you get excited, stop and think. For many entrepreneurs, having children join their businesses is a true joy. For others, their children are albatrosses. These latter entrepreneurs wonder why they ever thought it was a good idea to have their children work in their businesses, much less take them over.

If you are considering, or a client is thinking about, having children join the business, here are some important considerations:

1. Make sure the next generation is competent

You don’t want to be in a position in which you have to tell your client, or even worse, your own children, that they can’t stay with the business. Too often parents let their children join the businesses only to discover that their children add zero value to the enterprises—and sometimes even subtract value.

A business is not a place where you provide social welfare for a child. The next generation must be able to add to the value that the business provides to its clients and customers.

2. Make sure the next owners (your client’s children) have experienced life outside of your business

The best way to ensure that your children are competent is to make sure they’ve worked successfully outside of your company. You don’t want to have your children join your company as their first “real” job.

One of the most important rules you and your clients can adopt in your businesses is to require a child to earn at least one promotion while working outside the family company. This way, someone else can handle their early career training and make objective decisions about how competent the children are.

3. Have a real job for your child

After your children have proven themselves outside your business, you’re in a better position to have them join your company. But suppose you don’t have a job that fits their skills and experience?

This is not the time for you to make up a job for them. Make sure the child holds on to the outside job until you have a job that truly fits the skill set.

When it’s time to bring children into your business, make sure they’re not joining at a level higher than the job they had outside your company. You never want to have to tell a child that they aren’t welcome in the family business after an unsuccessful debut.

4. Think about your compensation policy for your children well in advance

Too often I see children overpaid or underpaid. Either way it’s a big mistake. Make sure you and your clients have a salary policy in place. If you do, it’s important that you pay children salaries comparable to what nonfamily employees earn for similar jobs.

If your children are overpaid, then nonfamily employees will find out and they’ll resent it. If your children are underpaid, they will find out and they’ll resent it. You’ll have some uncomfortable family dinners as well.

5. Never have your children report directly to you

Part of supervising an employee is correcting his or her behavior and work. This is not something you want to do with your child. Let’s face it: You have a history with your child around discipline, and it’s often not a very positive one.

Even though you have policies that work well for nonfamily employees, it’s rare that those policies work for family members when they’re applied by a parent. When nonfamily employees supervise your children, you’ll likely avoid hard feelings that result from having to reprimand children for their workplace behavior or performance.

6. Remember, Next Gen will run your business differently than you did

I’m hoping that you successfully integrate your child into your business. Now consider what it will be like when it’s time for you to transfer real responsibility to your child.

Just know that your child is going to approach problems and opportunities differently than you do. This means their approach to solving these issues will also be different and, in many cases, better than yours.

You’re going to want to look at the results your child’s methods produce. You need to let your children make mistakes and you need to be there to help them learn from those mistakes.

Think about how you learned on the job. I bet you made plenty of mistakes along the way.

7. Successful transitions come with a process

I like to see family businesses develop what I call a “family constitution,” which will help children joining the family enterprise. Your family constitution doesn’t have to be complicated. In fact, it can be as simple as the bullet point list below:

  • Have your child achieve a certain level of education.
  • Have children work outside the family business for at least two years.
  • Make sure your child has earned at least one promotion in a nonfamily business before joining yours.
  • Don’t start your children in the family business at a level higher than they had at their last nonfamily job.
  • Pay your child at the same scale that you would pay a nonfamily employee for a comparable job.
  • Have your child’s direct supervisor be someone who is not in your family, especially not you.
  • Have a system in place for accepting and learning from your child’s mistakes.
  • Let your children do things their way once they have proven themselves—unless their ideas will truly put your business at high risk.

I’m hoping that you successfully bring your child into your business. Years will pass and you will know that it’s time for you to let go and have your child take over.

This will be a challenging time for you. You’re going to need to learn how to let go. You’re going to need to find a compelling next chapter in your life. You’re going to have to let your child be his or her own person.

Successfully transitioning your child can be an incredibly satisfying experience. Have a system and stick with it. You’ll be glad you did.

About the Author

Josh Patrick, CFP®, is a serial entrepreneur and wealth manager who specializes in working with owners of privately held businesses. He spent 20 years in the commercial vending and food service business. From there he entered the wealth management business, where he now works exclusively with owners of private businesses, helping them create value in their business. His goal is to help business-owner clients create a better life. Josh can be found at Stage 2 Planning Partners.