When you own a small business you’re often asked to hire family or friends. The pressure can be strong, especially if they need the work. Sometimes it works out great, but not always.
I want to share portions of a note we received as a warning on how things can go wrong. It’s heavily edited for privacy and clarity.
In the last 5 yrs business exploded and I had to put on more help. One was a family member whose sole purpose was to answer phones and continue to book projects. During this time he began to steal deposits and screw over the very customers I’ve worked so hard to get. And I didn’t realize until October of last year that things weren’t right. During this time he had just about ran my business in the ground.
I am a young builder . . . what would you suggest that I do, he’s my father-in-law. We’ve since parted ways but now I have lawsuits showing up because he did so using my name and license.
It doesn’t usually get this bad, but when business and family mix together it can get ugly.
Stories like this are why it’s important to vet all your new employees. Take the time to check them out thoroughly. A good rule of thumb is to hire slow and fire fast; this applies to family and friends, too.
When you’re hiring a friend or a family member, you need to explain in no uncertain terms their conditions of employment. If that’s an uncomfortable discussion, don’t hire them, because if you can’t talk openly about employment issues beforehand, you’ll have an even tougher job after they’re on your payroll.
As I’ve mentioned many times, you must have a well-written employee manual in place, approved by your attorney before it is used. (Our employee manual can get you started.) Once you have an employee manual, everyone, even friends and family, needs to read and sign it on an annual basis. An employee manual won’t stop a dishonest person from being dishonest, but it might slow them down if they know you’ll hold them responsible. It also improves your legal standing if things go bad. Once they know the terms of employment, hold their feet to the fire. Being a member of the family doesn’t mean they can ignore the rules.
The other issue in this situation, of course, is the fraud and embezzlement. Anytime you suspect fraud, embezzlement, or dishonesty on the part of an employee, write down what you know or suspect as soon as possible. Include eyewitness accounts, pictures, copies of any and all documents, invoices, time cards, and anything else you might need to substantiate your case or claim.
If you’re not sure they’ve done something wrong, install safeguards and watch them close. If you’re sure, fire them.
Your next stop is to visit your attorney. Attorneys will often tell you not to pursue the case because the cheater won’t have enough assets for you to recover. I disagree; if you don’t stop them, they’ll go down the road and cheat another business owner. My advice is to go after them and put them in jail if at all possible, even if it costs you money to do so.
I hope this young man can salvage his company. I can’t imagine the strain this could put on both a business and a marriage. It’s human nature to want to trust everyone, especially if they’re family. When you own a business, trust but verify. Everyone should be subject to safeguards. Next week we’ll publish a list of some of those safeguards you can and should implement in your company to protect from fraud and embezzlement.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations.
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