5 Tips for Starting a Successful Family Business
Starting a successful family business can come from the most innocent beginnings. Imagine you’re sitting around the table, enjoying a Sunday dinner with your family, made from all of grandma’s best recipes. These are your go-to recipes for every family function, potluck event, or when a new neighbor moves in. Everyone you know loves this food, in fact, they rave about it, so why not open a restaurant, where you can profit from this deliciousness?
Before you get started picking out dishes and flatware, you need to have a plan. There needs to be many discussions about the structure of the business, the rules you want to adhere to, and even a discussion about how you treat each other. Here are five tips to help get you on track to building a successful family business.
Put Everything in Writing
Hey, we’re family right? We don’t need a contract. Wrong. Verbal agreements and handshakes leave room for interpretation and allow people to back out on the commitments they’ve made.
Take the time to hash out all of the big stuff, and the little stuff too. Determine things like salaries, work schedules, and daily responsibilities. Think about how you will make big decisions. Is it a family vote? What does the tie-breaking vote look like? What happens if someone wants to sell his/her shares? How do you handle individuals who marry into an already established business? What are the rules for taking on senior roles in the business? What does the succession plan look like when someone becomes incapable of keeping up his/her responsibilities? These conversations may get a little awkward, but creating expectations upfront makes it crystal clear what each individual’s responsibilities are and creates a manual of what to do in any situation.
Determine the Culture
Just as important as the rules of day-to-day business is the environment you create. While determining a mission, vision and values feels like a very corporate thing to do, it’s just as important for family owned businesses to determine their purpose. How will you serve your customers and your employees? What values do you want your employees to live? These types of behaviors help mold the culture of your business.
It’s also important to ensure that all employees, both family members and non-family members, are fairly treated. It’s important to give non-family members the opportunity to rise in the business. Creating a level playing ground is crucial if you want to keep a happy workforce.
Decide on a Formal Business Structure
It’s a good idea to turn your business venture into a formal entity like a corporation or an LLC. The most obvious benefit is that the individual owners are protected from personal liability should something go wrong. Typically, small family businesses choose LLCs as it offers the same liability protection as a corporation but without the complex business structure. As LLCs are typically member managed, there are no shareholders, directors or officers, and certainly no meeting minutes required.
Another benefit of the LLC structure is avoiding double taxation that happens with C-corps. Pass-through taxation happens in an LLC, where the profits and losses are passed through to members to report with their personal tax information.
Learn more about the formal business structures and let DoMyLLC help determine which one may best suit your business.
Don’t Forget Your Licenses
For the majority of businesses, local, state and federal licenses are required to operate. You may have to pay attention to zoning permits, or even rules regarding customers visiting your home. Check with your local city hall or county office to determine the requirements in your area. You don’t want to get caught operating without a license as the fines could be costly, and the possibility of being shut down is going to cost more than the time and effort to get the licenses from the start.
Create a Work/Life Balance With A Successful Family Business
The worst thing you can do in a family business is take work matters home and private family matters to work. If you operate in an environment where it’s all business all the time, the stress is likely to ruin relationships.
The best advice is to over communicate, but in the proper environment. If something is bothering you about a work process, or someone’s not handling his/her responsibilities, address the problem at work. This is important for family and non-family employees. If everyone can see that you are discussing all issues and handling discipline at work, there isn’t a worry that the owners are making major decisions after hours.
The same goes for family life. If there is a disagreement before coming to work, do your best to resolve the issues before you arrive.
Aside from arguments, take advantage of time away from the business. Relaxing and recharging outside of business hours is important for your mental state and for the business to be successful. Burn out is real, and if it’s all business all the time, soon the small stuff is going to become big stuff, and you’ll create bigger problems in the end.