From coffee shops to grocery stores, about 90% of U.S. businesses are family-owned or controlled, according to U.S. Census Bureau data. Family businesses also employ 60% of the U.S. workforce and create 78% of all new jobs.

“Family businesses outperform nonfamily businesses on a number of metrics,” said Henry Hutcheson, president of Family Business USA, a consulting firm that deals with complex family business issues. According to  a survey conducted by McKinsey & Co. between 2017 and 2022, for instance, family-owned businesses held a 33% higher economic spread than nonfamily-owned businesses, even through COVID and economic challenges. Economic spread, according to Investopedia, is the difference between the real return on investment and inflation.

“It’s the family name on the marquee, so you work harder,” Hutcheson said, plus there’s a higher level of trust with family members. “You get a group of family members that all know each other and grew up with each other. Basically, you’ve got a group of owners who think: ‘I don’t have to watch your back, and you don’t have to watch my back.’” That results in a more cohesive and effective organization, he said.

But it doesn’t mean working with family is always easy. In addition to the normal business stresses, there are also family dynamics, which requires carefully navigation of interpersonal relationships to occur alongside professional responsibilities.

Hutcheson’s tips:

Prioritize Open and Honest Dialogue

The most important key to running a small family business is honest and open communication, Hutcheson said. Never assume that because you are family, the other person knows what you’re thinking. You still need to enumerate clearly any business thoughts and plans.

In the same sense, don’t refrain from sharing information or feedback out of concern for how a family member might react or feel. According to Hutcheson, success hinges on a commitment to honesty. To thrive, he said, “agree that you’re going to be honest. Because of the nature of the situation, sometimes you’re going to say things, that hurt each other’s feelings.” But recognize that honesty isn’t intended to cause harm. Instead, it fosters transparency and growth within the family business.

He suggested setting up regular meetings to discuss any challenges, review goals and progress, and address any conflicts in a constructive manner. “Without communication, nothing else matters,” Hutcheson said, but that’s an amazingly more difficult thing than then people generally realize. They think: ‘Oh, we communicate. We talk all the time.’ I know you talk, but you’re not saying the stuff you really need to say.”

Clarify Roles and Responsibilities

Business with family may feel more casual, but it’s important for long-term success to clearly document and define, upfront, each family member’s role and the expectations of them, Hutcheson said, from working hours and responsibilities to wages and succession plans. Clear expectations help maintain professionalism and accountability within the family dynamic.

Also make sure that any family member hired is actually qualified for that role, Hutcheson said. “Business is about making profit, and families are about unconditional love and support, [which] don’t have anything to do with each other,” he said. Hiring someone just because they are family can compromise the integrity and effectiveness of the business.

Uphold Fairness and Impartiality

Avoid favoritism or preferential treatment based on family relationships, said Hutcheson. This means ensuring that family members are treated with the same level of fairness, respect and professionalism as that of nonfamily employees. For instance, if you decide to hire your nephew, “it’s crucial that they start at the bottom, do the dirty work and earn their way up,” said Hutcheson, just like every employee. This is the best way to avoid workplace friction.

Similarly, pay family members whatever the going rate is for the job, Hutcheson emphasized. On the flip side, don’t overwork your relatives just because they’re family. “You don’t want to grind them into the ground and make them hate the job,” he said. “Everything in moderation.”

Create Boundaries

Though there are numerous benefits to working with family, prevent familial history and interpersonal issues from permeating your business. The goal is to maintain the professionalism of the workplace and the overall integrity of the business. Therefore, set boundaries proactively, he said. “Acknowledge the fact that you are a family in business and it is difficult and you need to have a rule that when you’re at work, you’re working, and when you’re not at work, you’re family,” said Hutcheson.

He advised taking a break from business talk outside of work. “It can become unhealthy if you never let it go,” he said. “Overtly call it out and say: ‘Let’s separate it.’”

Get an Outsider’s Perspective

"It’s great when things are going smoothly and all family members agree on decisions. However, unanimity doesn’t always happen easily. When you encounter a deadlock in decisionmaking, seek guidance from advisers who are not affiliated with any family member, said Hutcheson.

That broadened perspective might just push through any standstills. “You don’t even necessarily need for them to give you an answer,” Hutcheson advised. “It can be helpful just to hear their thinking on an issue, as someone who is not on anyone’s side.”

Sometimes, external perspective is akin to “getting the onion peel back enough so that you’re like: ‘Ah, I can see that you’re right and I’m wrong. Let’s go ahead and do it that way,’” he said.

Create a Succession Plan

Develop a succession plan to ensure a smooth transition of leadership and management responsibilities in the event of retirement or unexpected circumstances. Think through things like strategies for knowledge transfer, continuity of critical business operations during the transition period and what the buyout will look like.

“There’s three things you have to have to be able to have a successful business transition,” Hutcheson said. “No. 1, you have to have somebody in the next generation that is sufficiently interested and capable [in taking over] or has the potential to. If you don’t, you’re selling your business. No. 2 is: The current generation has to be willing and able to step back enough to let the next generation get their hands on the wheel so they can actually learn the real stuff they need to learn. And No. 3 is that the next generation has to get along well enough to be in business together.”

Do “not force your kid into the business just because it’s your dream,” he said. That’s a recipe for disaster on all ends. “I’ve seen kids sleepwalk into the business, and then they were like: ‘This wasn’t my dream. I’ve wasted my life.’ Your goal as a parent should be [for your child] to have a happy, productive life.”

Instead, approach succession planning with careful consideration and open communication. Consider it a dynamic document, something you revisit every few years to ensure its relevance. The ultimate goal is to ensure the longevity and prosperity of the business while prioritizing the well-being and happiness of your family members.