What to Do When Your Brother Is Your Boss

The agreement includes such things as having a clear understanding of each person's position and responsibilities, performance metrics for everyone, making clear "who owns the business and who are employees of the business" and having a well-crafted employee handbook, among other expectations, Thompson says.

Equally important is to have such conversation with family members before conflict arises. If family members are uncomfortable having these discussions, Thompson says, they should bring in an outside coach.

In essence, despite working with the people closest to you, it is important to "run the business as a business," Thompson says. "Trying to keep family drama and dynamics out of the office is really key."

Bob Gellman, a director at accounting provider CBIZ MHM and author of The 7 Keys to Unlocking the Door to Your Dreams: Exit Strategies for Business Owners, says succession planning can be difficult for family-owned businesses, especially if owners prefer to sell the business instead of handing it down to children.

If the business "looks like the decisions were made at the dinner table ... you [will] see the difference in how the business would look from the outside. "Who would want to buy a company that looked like that? And who would want to work for a company that looked like that? A lot of times [family-owned businesses] have reduced growth and value opportunities."

But there are perks to owning a family-owned business.

For one thing, you get to work with your family. That's key for Wayne Stiltanen, owner of Island Buggies on Nantucket Island, Mass., which rents out restored classic American-made cars and offers taxi and limousine service.

Island Buggies is run by Stiltanen and his wife. But since the business is seasonal, a son who lives in Los Angeles and a college-aged daughter come back to work during the summer.

Stiltanen particularly appreciates some of the out-of-the-box ideas his kids have for a growing business, says the retired airline pilot, who opened Island Buggies last year.

Last summer, Stiltanen, at the suggestion of his son, came up with a reduced-priced offer on rentals to generate buzz about the company. Although the offer reduced Stiltanen's profit for a short time, in the end he gained customers from the added advertising.

"I thought it was a good idea," he says.