Many Business Owners are Hiring Relatives to Find Debt Relief

Hiring Family Members

Employing relatives in a family business can be a reward path to debt relief, but some precautions are necessary. (Photo: flickr.com)

Employing relatives in a family business can be a reward path to debt relief, but some precautions are necessary. (Photo: flickr.com)

The search for debt relief has been a strong incentive for business owners to employ their relatives. Statistics are showing that of the six-million-member pool of small businesses in the U.S., about 20 percent of those with 100 employees or more, involve two or more family members. Analysts are speculating that these businesses have a greater ability to withstand bad markets and economic problems. There are some interesting reasons why their resilience may be something to watch.

Patiently Committed

The first trait these businesses have is that their owners and all family members involved tend to be patient entrepreneurs who understand the market. They tend to be “building conservatively over years and turning a deaf ear to the siren song of debt,” stated Matthew Brady, head of Barclays, a wealth-advisory group. He claimed that these types of owners and workers are more prone to focusing on “legacy and commitment” than dollar signs and profit. They are a breed of worker who will put their full efforts into building their businesses and don’t read small negative signs as disaster. Brady added, “These workers live by putting their hands to the plow, rather than interpreting the weather.”

One example of this is Boardroom Inc. This is a family-owned and operated publishing company in Stamford, Connecticut. The company began in 1972 at the direction of Martin Edelston. He employed his wife and three children. Edelston stated, “We’ve lived through ups and downs of the economy but giving up was never an option. This is our life, not just a business.” It’s this type of commitment to the business that’s built it up to sales of $100 million while maintaining no debt.

Issues That Arise (aka “The Ties That Bind”)

There are some issues that can arise from hiring family members, however. These issues can make debt relief the smallest of a business owner’s issues if they aren’t careful. Here are some tips to be aware of when owners debate hiring their family members.

• “Use your brain, not your heart,” cautioned Don Schwerzler, founder of Family Business Institute. Because a family member lost their job is not a good reason to automatically employ them. Business owners need to make sure there is an actual position the family member would be a good fit for, before hiring them.

• Owners shouldn’t use hiring a relative as a sure-fire way to find debt relief. The reality is that if a relative is doing a job well, they should be compensated well. They should be earning and have the earning potential equitable to someone coming in off the street.

• Decide what will happen if the family member doesn’t work out. Having a hiring board or advisory board can make firing decisions easier, but if the person to be let go is a relative who the owner hired, they normally have the job of firing them.

• Business owners should be willing to listen to their family member’s ideas. Sometimes it takes a fresh thought to push businesses to newer heights of success. Schwerzler said, “In great family businesses, there is a surprising amount of disagreement when new ideas are first being discussed.”

• Families need to have a way to stay focused on the business’s growth. It’s easy to become “too casual” when family members meet in the board room. Schwerzler suggested using a family business advisor to manage. They specialize in looking “for sources of friction—principally with [the owner].”

Making Family-Run Businesses Work

Family-run businesses can be successful and fulfilling. When a new business owner makes the decision to hire family as a debt relief tool, they may find themselves either wildly successful or bitterly disappointed. They should be aware of the situation and dynamics of the relationship. Ideally, having people who are automatically invested in the company is what owners want. They should monitor progress along the way, but it is a workable plan.

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