What You Need to Know About Going into Business with Family

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When starting a company, you might be considering going into business with your family members. During your research, you might encounter a statistic that there is a 70% chance of a family business failing before the second generation can step in to take over. Don’t be discouraged by this fact as it is not only family businesses that are at such disposition. There is a 66% chance that any business will go under within 10 years, meaning that opening a company with your family is no worse than going into business with people that are not related to you. With that in mind, starting a family business doesn’t have to be a bad thing if it’s done properly.

So, if you and your family share a skillset, you have skills that complement each other, or you need an investor, here are some things you should know about starting a business with your family.

Create a succession plan

Many families decide to start their own business to provide future generations with a secure income and a solid foundation they can build on. If a company is successful, there will be no need for various middlemen like investors and banks that the next generation will have to borrow money from. However, in order for such a plan to succeed, you will need to come up with a succession plan. Unfortunately, there are always unforeseen circumstances that could affect your family business, such as a death in the family. To prevent your company from going into disarray, you need to have a clear line of succession that will specify how responsibilities are assigned in case of an unexpected situation. It’s important to know from the beginning if certain family members have no intention of taking part in the business so that you can keep your expectations in check.

Avoid nepotism

If you set your family business up properly, it’s bound to thrive and expand. However, that can mean bringing in people outside of your family to help out. These non-family staff members should be treated equally, which means that you cannot overlook them for important positions and pay-grades. If your employees notice nepotism, they will be dissatisfied and perhaps look for other job opportunities. Making sure that standards for promotions are based on merit alone will both encourage the workers you are not related to and discourage your family members from being lazy and not putting any effort into the company.

Minimize conflict

It’s only normal that your family will get into an argument here and there about how you should run the business. However, it is of the essence that you do your best to minimize any kind of conflict that can severely affect your company. It’s not uncommon for family members to get into disputes about who is in charge, who gets what after a divorce, and similar topics related to power and control over the business. In case you feel such an issue arising and you feel like you cannot tackle it on your own, you can always turn to experts like those from Doolan Wagner Family Lawyers that specialize in mediation and solving various family issues. Professional attorneys familiar with family law can help you reach a solution that suits everyone.

Get everything in writing

To avoid various disputes over the company, you should get everything in writing from the start. That way, no one should have any reason to complain or any basis to sue. For instance, when starting the company, clearly assign roles that ensure everyone knows their place. Let’s say, you asked your parents to invest some money and remain a silent partner. If you have that in writing, they should not have a say in how you run your business. Then, if you have a prenuptial agreement specifying how the company will continue in case of divorce, there should be no issues with the further operations of your family business.

Stay on top of bookkeeping

Besides conflict within the family, one common reason why family businesses fail is finance mismanagement. If your goal is to equip the future generation with a steady source of income, you need to stay on top of your bookkeeping. This means paying attention to all the money that is coming into and going out of the company as well as making sure you are respecting your obligations to your suppliers and clients and not using business assets for personal expenses. To avoid such problems, you should open a business bank account that will only be used for the company’s finances. Furthermore, it’s a good idea to hire outside professionals to handle your accounting and bookkeeping to prevent various conflicts of interest.

Opening a business with your family members can be a profitable venture that helps you strengthen your family bonds. However, if you don’t take certain measures to prevent various types of problems that family businesses encounter, you could run into some trouble. Keep the abovementioned tips in mind in order to be successful.

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