Reasons Your Family Business May Fail and How To Avoid Them

Family businesses are the backbone of the American economy. In fact, according to research, family-owned businesses make up 64% of US businesses and employ 62% of the workforce.

However, as any business owner will tell you, running a successful business is no easy feat. And when you throw family dynamics into the mix, things can get even more complicated—and contentious. In fact, statistics show that only 30% of family businesses survive into the second generation, and just 12% make it to the third generation.

So what causes family businesses to fail? Here are some of the most common reasons:

Lack of Planning

Many family businesses are started with plenty of enthusiasm but little planning. While it’s great to be passionate about your business, you must be realistic about the risks and challenges involved. Without a solid plan, it’s too easy to make careless mistakes that can risk the future of your business.

For example, you might underestimate the start-up costs or fail to adequately research the competition. Or you might not have a clear idea of what your business wants to achieve, making it difficult to set realistic goals. Without a well-thought-out plan, it’s too easy for a family business to fail.

Lack of Communication

If you’re running a family business, good communication is essential. After all, you’re likely dealing with a lot of different personalities, and it can be easy for misunderstandings to occur. Unfortunately, if communication breakdowns aren’t addressed quickly, they can seriously impact the company.

For instance, employees may become disgruntled and look for other jobs. Additionally, customers may begin to take their business elsewhere. To prevent these problems, it’s essential to ensure everyone in the company is on the same page. That way, everyone will be able to work together effectively and keep the business running smoothly.

Poor Money Management

Poor money management is one of the main reasons family businesses fail. If you’re not careful with your finances, it can strain your relationships and cause problems down the road. Here are some ways that poor money management can cause a family business to fail:

  • Not having a budget: A budget is essential for any business, but it’s especially important for family businesses. Without a budget, it’s easy to overspend and get into debt.
  • Not tracking expenses: It’s essential to keep track of all your expenses, so you know where your money is going. Otherwise, you may end up overspending on unnecessary things.
  • Not saving for taxes: Taxes can take a big chunk out of your profits, so it’s important to set aside money each month to cover them. If you don’t, you may be in financial trouble when tax season comes around.
  • Not having an emergency fund: unforeseen circumstances can arise at any time, so it’s important to have an emergency fund to cover unexpected expenses. If you don’t have one, you may have to resort to borrowing money, which can put even more stress on your finances.
  • Taking on too much debt: Debt can be helpful if used wisely, but it can also be detrimental if not managed properly. If you’re constantly taking out loans and lines of credit, it can strain your cash flow and make it difficult to pay off your debts.

Family businesses are a vital part of the economy, but they can be vulnerable to financial problems if they’re not managed carefully.

Infighting Among Siblings

One of the most common reasons family businesses fail is due to infighting among siblings. When siblings cannot get along, it can lead to arguments and even physical confrontations. This can be highly disruptive to the business, as it takes away from time that could be spent running the business.

Additionally, infighting among siblings can damage the business’s reputation, as potential customers may not want to do business with a company known for its dysfunction. Finally, infighting among siblings often leads to one sibling taking control of the business, which can be financially detrimental to the other siblings. For these reasons, it is important for siblings involved in a family business to learn how to resolve their differences constructively.


Failed couple

While getting a divorce can be stressful for any couple, it can be especially complicated when the couple owns a family business together. In addition to dividing up assets and custody of children, the couple must also decide what will happen to the business. Often, one spouse wants to keep the business while the other wants to sell it. This can lead to a lengthy and costly legal battle, which can take a toll on the business itself.

If you’re going through such a case, you can employ the help of a divorce attorney. They are experts in this field and can help you determine the best course of action for your particular situation. Additionally, they can help you negotiate a settlement that is fair to both parties and protects the interests of the business.

As a result, it is essential for couples who own a family business to carefully consider all of their options before proceeding with a divorce.

The “Empty Nest” Syndrome

When children leave home, it’s not just parents who experience empty nest syndrome—it can also affect family businesses. After years of working side-by-side with their parents, children may find themselves unemployed or with less responsibility than they’re used to when they leave home for college or enter adulthood. This transition period can be challenging for everyone involved. If not managed properly, it could lead to parents ceding too much control to their children or children feeling resentment towards their parents and wanting nothing to do with the family business.

Prevent your family business from becoming another statistic by being aware of these common pitfalls. By taking steps to overcome them—planning for succession, communicating openly, managing money wisely—you’ll set your business up for long-term success.