It’s not every small business owners dream to start a family business. It’s rare that small businesses can last through generations of economic and political reform. According to SBA, only 1/3 of small businesses last over ten years. Those harsh statistics don’t stop families from setting up shop together. According to GVSU.edu, there are 5.5 million family-owned businesses in the United States. If you’re interested in starting a family business, you’ll need to know the what you should and should not do.
Here are are a few do’s and don’ts when you open your first family business:
Starting a Family Business: Do echo family values
Personify your brand and family identity by nurturing your family values into your working style. If you have family traditions, bring them to life within the business to remind yourself of your roots. This adds an element of trust and humanizes the family brand.
Starting a Family Business: Don’t ignore legal documents
You’re making a huge mistake if you don’t sign any legal agreements. No one’s family is perfect and every family argues. These documents are a huge must to ensure legal protection for the business and staff in the event of a family dispute. If a family argument happens, which it will, referring to operating agreements for immediate solutions.
Assigning salary or hourly pay to your family won’t be an easy task. Because members have the title of family they may expect to get paid more than their actual job position worth. In order to ensure financial security for your business and family, make sure to have all employees sign a contract. This legal approach shuts down any arguments about salary, house rules, and employee expectations.
Starting a Family Business: Do establish professionalism
To establish professionalism in your business, separate your role as a family member and employer/employee. You’ll need to set boundaries if you want to keep a healthy professional and personal life. Professionalism should take precedence in working life. As a business owner, you can’t rely on goodwill, assumptions or personal ties to gain preferential treatment. You’re a boss now, so act like it.
Starting a Family Business: Don’t exclude external reviewers
If you’re dealing with legal matters, seek advice from an external professional. If you let a family member take this role, you’ll encounter bias. For example, a family member is less likely to discuss contingency plans in the event of sudden death, disease or divorce. Going outside the family allows for a neutral, non-biased viewer who can address blind spots and sensitive circumstances.
Starting a Family Business: Do form hierarchy
A hierarchy is essential to driving the vision of the family business. A family member’s job role should not be based on age. Rather than placing the younger generation into basic roles, assign jobs based on their skillset.
Starting a Family Business: Don’t choose just anyone to be your successor
If the day comes when you’re ready to pass the torch to the next family member, you’ll want a succession plan ready to go. You’ll also want to pick the right person for the job. The new leader should have the skills and experience socially and professionally to run the business prior to taking over. Keep a watchful eye for the right person. Whoever you choose should be able to put development plans in place, begin training, and achieve the required qualifications in the run-up to succession.
Starting a family business provides a life plan and livelihood for generations to come. Another bonus? Since your business is run by family, they’ll know the ins and outs and the true company vision. Visit MyCorporation to start your family business today!
Keith Tully is a partner at RBR Advisory, specializing in business restructuring and turnaround for large businesses. Keith works with businesses of all sizes to facilitate recovery and has specific expertise in trading and non-trading administrations.