Small businesses have always been a place where families get to work together. Many small businesses use family members as staff, and this mixing of family and business life can bring many benefits.
You know the people working for you better than a regular employee. You can trust employees who are related to you, and in most cases you will get a great deal of loyalty from family members within the business. It is also a fairly common practice to pay family-employees less than fair market wage, or even nothing at all.
What a business owner ends up with is loyal and trustworthy family-employees at a bargain, how could this possibly be a bad thing?
It’s a bad thing when it comes time to sell the business.
There are two main reasons, reasons a business owner needs to consider long before they want to put the business up for sale.
The first of these is value of the business. A client with a small restaurant had several children who worked as wait staff, and they were not paid hourly as the rest of the staff- they only took home what they earned in tips. The amount of work that these essentially unpaid workers did was very significant, as they helped in all aspects of running the restaurant. When buyers were evaluating the business, they had to add back in the fair wages these children never took, dropping the value of the restaurant substantially.
Another problem with the family-employee is loyalty at the time of the sale. If your kids are working for you because they feel like they have to instead of because they have a genuine interest in the business, there might not be much chance of them staying with the business once you’re gone. This can pose problems for a new owner, especially if those children are key employees within the business.
How can you avoid these pitfalls?
The most important thing you can do to protect the value of your family-run business is to be sure that all employees are paid at least fair market wage. Most business owners end up having to sell long before they thought they would be ready, so by having everyone “on the books” in this way, you are protecting the value of your business.
You can deal with issues of loyalty by having non-family employees who are trained to fill the positions of family members, even if they never do. By cross-training your staff in this way, you can ensure that a new owner will be left with a competent staff even if your family members decide to leave the business.
Do you own a family-run business and are concerned about the value of your business or employee retention after a sale? Leave us a comment or question here, and we will be happy to assist you with getting the most out of your business.