Starting a small business with family members is both rewarding and challenging. Without discipline and open lines of communication, you might find yourself struggling with a failing business and strained relationships. Here are some tips for any entrepreneurs who are thinking about starting a business with their loved ones.
One of the biggest challenges of starting a business with family members is mixing professional matters with private matters. It is all too easy to talk about the company at all hours of the day, but that will negatively impact your relationships. Many families make a pact that they will not talk about the business outside of business hours. While this does not always work, it sets a good precedent for your entire family and will help you preserve your relationships.
Discuss Finances Early
Just because one family member is supplying the seed money doesn't mean they will also be able to cover emergency expenses. Everyone involved in the business should know exactly who is responsible for each expense well before you open your doors. You should also decide if taking on more of the financial burden will increase that individual's seniority in the company. A family member might be interested in investing more money without taking on additional responsibilities. Alternatively, other family members could be interested in investing extra time without spending any of their personal money.
Create a Formal Business Plan
These documents contain information such as the company's philosophy, market research, estimated costs, and the chain of command. After the business plan is formalized and everyone has looked over the information, they must all sign a contract confirming its legality. A formal contract might seem like you do not trust your loved ones, but it could actually protect their personal assets in the event of a disaster. One of the most effective ways to protect everyone's assets is to establish the company as an LLC. An LLC that goes bankrupt does not affect anyone's personal finances. A sole proprietorship might seem like an easier option, but the owner will be putting their financial future at risk.
Know When to Ask for Professional Help
Even if your family has a diverse set of skills, they are not going to be able to run every facet of the company. Just because one family member knows how to create a world-class menu doesn't mean they know what online reputation techniques will bring in new patrons. Your family should sit down and discuss which facets of the business must be taken care of by a professional. This is another aspect of a family business that can be quite difficult. Many people assume they can do a job relatively well without realizing that it is not cost-effective to do it themselves.
Establish a Line of Succession
Many families start a business together so their children will have a solid financial future. Unfortunately, the line of succession can become murky when multiple siblings have children near the same age. Figuring out which children are inheriting the business will ensure that there are no stressful legal battles in the future. If more than one child is interested in joining the family business, then they should start working there as early as possible. After working in the industry for a short period of time, some of the children might decide that it is not the right path for them.
In the end, a successful family business requires clear lines of communication and a little bit of patience. With the right attitude, your business could preserve your family's future for years to come.