There are a lot of pros to launching a business with other members of your family. For one, you already know each other deeply so there will be more trust between you as partners. For another, it’s a wonderful opportunity to build something of meaning and value to pass on to the next generation.
But at the same time, we also can’t deny the potential issues it may cause. There’s a reason why many financial experts often bring up the cons of starting a business with people who play a big part in your personal life. But there’s no reason why a family business can’t succeed, especially if you put the proper boundaries and safety precautions in place.
Here are some key tips and safety measures to take if you want to launch a successful family business.
Establish a business plan with specific safeguards.
When starting a business with your family, you have to develop a business plan that addresses the following specific details:
- Proper role definitions. What jobs or positions are people going to fill-in? These need to be defined clearly and specifically because you and your family members may have different ideas on how to run things. By clarifying everyone’s roles from the start, you protect each other from overstepping bounds or being confused about the chain of command. Be clear about who reports to who and what the daily tasks are.
- Compensation. One of the things we might neglect when doing business with family is proper compensation since we might assume we can extend more understanding for each other, but at the end of the day, this is still a job where people would be using their energy, skills, and resources. Be clear about the salaries from the get-go to help manage expectations.
- Ownership stakes. Will the members of the family get a stake in the business? Will they have voting rights on how things are handled? These details need to be ironed out before you make big moves to launch the business, and so people know what legs they stand on in the company.
- Succession plan. The founders in your family may not be around forever, whether due to retirement or something else. Launching a succession plan as soon as you begin is a smart way to ensure that the business will be in the hands of capable individuals if anything goes sideways.
- Exit plan. Even if family members feel like they’re in the business for the long haul, you still need to come up with an exit plan for everyone involved because you never know what tomorrow could bring. This should involve figuring out how much the stakes are worth and how people will be compensated if they choose to leave.
If you find that figuring all this out is above your pay grade, hiring outside counsel who has a textbook knowledge of these things. For example, if there is a divorce in the family and the business or company is at stake due to the separation, reputable family law firms like Lewis & Matthews, P.C. can help you sort things out and can help act in your best interests.
Set other boundaries and ground rules.
Now that you have the legalities and technicalities in place, here are some other ground rules and boundaries you can consider putting in place for everyone’s good:
- Set a man between your family or personal life, and your professional life. When you’re in the office or the workplace, you are co-workers before you are parent-and-child or siblings. This can help keep a professional atmosphere in the workplace, and it keeps you from talking business or bringing the stresses of work to the dinner table.
- Strongly encourage the younger members of the family to have experience from outside businesses. This can help prevent them from gaining a sense of privilege, or feeling like they will always have something to fall back on. It will teach them the value of hard work and will provide them with a much-needed experience from the outside world.
- One of the best ways to keep your business’s integrity is by hiring outside counsel. This can take the form of financial advisors and lawyers. Whoever you decide to hire, make sure it’s someone who can help keep everyone honest.
- Treat everyone in the company equally, whether they’re members of your family or not.
The Bottom Line
There are a lot of risks to starting a family business, not the least of which is your relationship. But with the right safeguards, boundaries, and ground rules in place, there’s no reason why you can’t all work together to achieve a common goal and find success in this venture.