Starting a family business allows you to spend your working days with the people you care about the most. It gives you the opportunity to build a company that your kids may one day take over or that you can sell when you retire to provide monetary support to your children.
However, setting up a company is no easy feat. Before you even consider it as an option, it’s important to know how to start a family business and how to run a family business successfully.
What Is a Family Business?
Usually, a family business is a company run with a partner, sibling, or other close relatives, but it could even be with a best friend. The members of the business combine their talents and experience to provide a service that the community lacks or that improves upon current offerings.
Advantages of Family Businesses
There are plenty of advantages of family businesses — these are the reasons why such ventures are so appealing.
1. You Already Know Your Workers
Onboarding a new hire always takes time because you need to learn about the employee’s working style and personality. It’s much easier when you hire family members, as you already know them and how they communicate. You’ll even be aware of potential problem behaviors and can take steps to mitigate issues.
Plus, when you hire family members, you eliminate the interview process. This is always a time-consuming part of starting a business, especially when you need to run background checks and confirm the validity of certifications.
2. Comfortable Atmosphere
Already knowing everyone also creates a great work atmosphere. For instance, you’re able to have proper conversations rather than just small talk.
3. An Advantage Over Other Businesses
With a family business, you’ll have a tightly-knit team of workers, all of whom will be committed to the success of the company — much more than if they worked for just any employer.
4. Greater Flexibility
Family members are also more likely to be understanding when someone has another obligation and needs to take time off or change work hours. Provided that everyone is committed to the success of the business, it’s easy to be flexible.
5. Customers Prefer Family Businesses
Customers like knowing that there’s a family behind the scenes. The brand image is one of trust, hard work, and togetherness. This is especially true when you also treat your customers as family.
Disadvantages of Family Businesses
Of course, there are also many disadvantages of family businesses. It’s crucial that you assess these disadvantages before you decide a family business is the right choice for you.
1. Family Relationships Will Change
You cannot run a family business and expect relationships to stay the same. The challenge is to make sure changes are positive, as it’s easy to create lasting conflicts. One difficulty in particular is the fact that one of you needs to be in charge. It’s important to remember that the role of manager does not pass over into family life.
2. Your Kids Should Still Work Elsewhere
Whereas it may be tempting to provide your kids with a job at your business straight out of high school or college, this is not recommendable. It will be far more valuable for them to spend time working at other companies first to expand their world experience and learn about how other businesses function. The disadvantage is that your kids may decide to work somewhere else permanently rather than joining your company.
3. Promotions Need to Be Based on Merit
Family members may expect to receive a promotion because of who they are in the family rather than due to their role in the business. If your business is to succeed, you need to base promotions on merit. This will also give equal opportunity to employees outside of the family.
4. Creativity Is Sometimes Stifled
The environment of a family business can easily become too relaxed. This, combined with the fact that you all have similar backgrounds, can mean that innovation is minimal.
Common Types of Family Businesses
Unsure what kind of business to start? There are a few most common types of family businesses that are popular because they lend themselves to a family structure.
Food businesses are a great option for people who love cooking and have some unique family recipes or original ideas to share. Whereas traditional restaurants may be struggling right now, there’s a new trend on the horizon: ghost kitchens. These facilities prepare food for online delivery only, which is extra appealing during a time when people are spending more time at home but want a break from cooking their own meals.
2. College Advice
You learn a lot when you send a kid off to college. Once all your children have graduated, you have no more use for this knowledge, but many other people are starting the process from scratch. If you have a sibling who also needed to deal with the application process for your nieces and nephews, you may be in the perfect position to start a business together.
For example, you could offer other families support to find the right college, navigate various payment options, or create killer applications. It may be best to specialize in just one aspect at first, but you can always hire other experts and expand into more areas later.
It’s common for farms to be in the same family for generations. If you live in a rural area, a family farm could be one of your best options.
4. Handyman and Repairs
If you have a family of skilled contractors, there’s no need to continue working for someone else. Start a business that offers remodeling, decorating, or home repairs. Other family members can also become involved in the administrative side.
If you’re already taking care of a kid or two, you can stop being a stay-at-home parent and become a business owner. Enlist the help of a few family members to handle larger groups of kids.
6. Senior Care
When your kids are at least school age, a better choice than the above could be in-home senior care. This is ideal for those with experience taking care of elderly parents — and it’s easy to keep expanding your business to add more clients.
How to Start and Run a Successful Family Business
Just like with any other type of company, it’s necessary to have a plan in place to start a family business. Involve everyone who will be working at the business in this planning to ensure that you’re all in agreement.
Step 1: Define Your Business Idea
All of you should be passionate about the business idea. It’s no good creating a company simply to earn a living — you might as well work a regular 9-to-5 job if that’s what you want. Come up with an idea that combines everyone’s interests and life goals.
Step 2: Determine the Role of Each Family Member
Every member of the business needs to have a defined role with set duties and responsibilities. Choose the roles according to skills and background as well as weaknesses. It’s useful to have a hierarchy of positions to ensure each person knows who to report to — this can minimize conflict.
Step 3: Set Out Guidelines for Running the Business
It can be difficult to make the transition from family members to business partners. Laying out clear guidelines will help tremendously.
For one thing, you need to make sure that everyone separates business matters from family issues. For example, a younger family member may turn out to have excellent leadership skills and be a great choice for a manager. Keeping personal relationships out of business will avoid resentment.
Also make sure to dedicate time to spend as a family — and avoid talking about business at these times. After all, you want those who decided not to join the business to still feel as much a part of the family as ever.
Step 4: Talk About Risk
Starting a business is always risky. There’s a chance that your venture will fail and you’ll lose your investment. Discuss this with all the family members who want to invest in the business and make sure they are willing to take the risk.
Step 5: Decide on Workloads
At the beginning, working a family business will be far harder than being an employee at an established company. You’ll need to work long hours, put the business before many other commitments, and spend less time with partners or children who are not part of the business. You’ll do all this while earning less than you’re likely used to. Family members need to be aware of this and be willing to make the necessary sacrifices.
Step 6: Discuss Compensation and Ownership
You’ll need to agree from the start how much you’ll compensate each employee. You may pay a salary, use hourly wages, or give family members a certain share of the profits. You could even use a combination of these. Whatever you do, you’ll need to confirm your choice is in accordance with state wage laws.
In addition to payment, you must agree how much of the business each family member owns (if any). This will include the percentage they receive if you sell the business. It will also determine voting rights when deciding what direction your company will take in the future.
Step 7: Create Opportunities for Growth
Just like when working for any other company, team members will want to have the chance to grow in their careers. Talk to each individual in turn to find out about their goals and how your business can provide the right opportunities.
Step 8: Specify Exit and Succession Plans
It is equally possible that a family may decide to leave the business to pursue something else. You need to specify what will happen in this eventuality and what compensation the person will receive, particularly if the employee has a stake in the company.
In addition, the founders of the business are going to retire at some point. From the start, lay out the terms for handing over the business to someone else.
Step 9: Manage the Legal Side
Once you have all the above details ironed out, it’s important to structure your business appropriately. Contract a lawyer to draw up the necessary documents and ask a business consultant for advice on aspects like the business plan, employee benefits, retirement plans, and taxes.
Step 10: Hire from Outside the Family
There’s a good chance that you won’t be able to find all the skills you need in your family members alone. Fill this knowledge gap with outside hires. It’s critical that you treat these employees the same as your family members — with the same opportunities to move up and involving them to the same degree when celebrating milestones.
Family businesses can be hugely successful. Everyone at your company will be striving to do their best for the good of the family. They may even want to leave a legacy or have a company they can pass on future generations.
However, you will need to carefully navigate tough business decisions to avoid creating a rift in your family. To see success, you’ll need to be well-versed in how to start a small family business, have a solid business plan, and be willing to take whatever steps are necessary to allow your company to grow.