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Divide the lines between family and business

Having run seven businesses over 20 years, I swore I would not let family members get involved in or inherit any of my enterprises. So far, I have held true to that commitment – but then again, it's still illegal to hire eight-year-olds or those younger, so I haven't so far received much pressure from the kids.

It seems to me that most businesses are way more complicated than they seem to be on the outside. The same holds true for families. Mixing the two must be harder than keeping them separate. Most entrepreneurs struggle not to take work home with them. It must be tough when you are taking employees home with you.

With that said, I have worked with, for and around lots of family businesses that seem to survive and thrive.

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So, with the caveat that I am an outsider looking in, here are my thoughts.

If you are in a family business, you need to pretend that you are not.

The brother you hired is an employee at work and a sibling at birthday parties. Sure, you'll talk shop outside work like you would with any co-worker, but don't share privileged information, especially about other employees.

A wife with shares is a shareholder at work. An uncle who has invested is an investor or lender at work.

If other employees get a whiff that a paternal relationship translates into special privileges, you will not only lose their respect, but will introduce a morale disease that will be hard to cure.

Poor performance by relatives is grounds for dismissal under the same conditions as for any staff member. Family members need to apply for and be interviewed for a job and have their performance reviewed in the same manner as all of their co-workers.

Family members need to know and be treated as if they are earning their keep, not enjoying some birthright. They should be paid a fair market wage and benefits and not treat the business like a piggybank with inappropriate expenses.

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I have seen this overcompensated for at some companies. That's not helpful either. Discrimination is discrimination, in both directions.

I'm a big fan of periodically letting outsiders into my business to see what I am missing. You may want to hire a human resources consultant for a quick audit and interview with employees in and out of the family to get the inside scoop. There are firms that specialize in family business-strategy development.

When it is time to sell some or all of your company, family members should compete for that opportunity along with outside entities who will help to determine a fair market valuation. Shares should be bought, not gifted. Loans associated should be well-secured with default criteria and countermeasures – outside financing is preferred.

Establish your long-term intentions with family members well in advance, so there are no surprises or disappointments.

While kids or other family members needn't be shut out of your business altogether, having them function as individual entities is critical. Remember, not all family members will want to be or will be successfully involved in the business, and you don't want your family damaged any more than your business.

I'd much rather have a business go bust than my family. Keep it clean and objective. As much as possible, keep it separate.

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Special to The Globe and Mail

Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and exited seven businesses.

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