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Common mistake threatens family business ownership

Adam Zuchetti
Adam Zuchetti
13 February 2018 1 minute readShare
Separation, broken heart

An all-too-common failing of many couples and families who go into business together is leaving many to run the risk of losing control and ownership of their enterprise.

Business coach and mediator Darleen Barton of DIPAC & Associates said there are a number of common scenarios that she is called in to help address. Among these are:

  • Disputes between family members who set up the business together but disagree with the direction of the business
  • Disputes between family members over spending, allocation of profit, etc.
  • Tension and problems associated with the involvement of family member partners, girlfriends, adult children – and their partners
  • Divorce, separation and claims over all or part of the business and its assets
  • Dealing with the long-term illness of a partner

In many cases it can be expensive, time-consuming and highly stressful to resolve the issue once it rears its head. Yet these situations can be entirely avoidable, said Ms Barton.

“The best approach is to structure well and put in place mechanisms to enable issues to be resolved before they become problems,” she said.

That means going into business, or bringing new people into the business – even family members – with proper procedures and documentation in place, including formalised ownership structures, employment contracts and job descriptions, redundancy plans, dispute resolution procedures and even a personal will.

“Many business owners I work with to address and resolve family-based disputes and issues find themselves facing stressful situations due to a lack of clear boundaries between personal and business relationships with their business partners or employees who are also family,” said Ms Barton.

“It is a real skill mastering how to separate your personal and work life, especially with such familiar people around you, but it has to be done and this is what I encourage clients to take on and incorporate into their businesses.”

Established, mutually-agreed frameworks that are implemented while relations are good can help to mitigate problems down the line, and potentially even save the business and its owners from financial ruin.

“I recently worked with a business where the owner’s son involved his wife in the long-standing family business and when the son separated from his wife, the wife sought to include half of the business in the settlement,” Ms Barton recalled.

“Unless businesses are structured well, things can end very badly for a business owner.”

But what if it is too late and a problem has already arisen?

“My advice to everyone is mediate early. Rather than spend a fortune on lawyers, try and work with the other party to achieve a solution through mediation,” said Ms Barton.

“Lawyers will then simply be able to assist you to seek ratification of the resolution and if necessary, ratification through the courts. This will save a lot of heartache and a lot of money.”

Common mistake threatens family business ownership
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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