On many occasions, I’ve seen entrepreneurs embark on operating a family-owned business and thinking that it’s going to be easy to be successful or that there won’t be any of the problems typically encountered in an non-family scenario.
In many cases, however, these assumptions rarely turn out to be the case.
Many of the issues arising in a family business scenario are unique, and it is wise to plan for these accordingly. For example, working with loved ones can give rise to conflicts otherwise not encountered in a non-family scenario.
As Wells Fargo Advisers notes: “In a family business, every decision and policy has to be evaluated based both on how it works for the business and also how it will affect the family dynamic — and that adds an extra dimension,” says Daniel Prebish, Director of Life Event Services for Wells Fargo Advisors.
It’s worthwhile to note that getting into business with your loved ones might indeed be a dicey proposition, particularly when you look at the statistics. Roughly 70 percent of family-run businesses don't make it to the next generation.
Note the following points which are some keys to running a family business, as observed by USA Today:
- Decide who does which job. In a small business, typically everyone wears several hats and pitches in whenever a job needs to get done. But it’s still a good idea to make sure you spell out everyone’s primary role — whether sales, administration, financial management, whatever. If you’re trying to groom the next generation, you may want to rotate jobs from time-to-time, but give each person an area of responsibility, a job description, and title.
- Make Sure Everyone Works. Everyone who works for the family business should actually work, not just get a paycheck. Even the teenagers.
- Put it in writing. For example, your brother-in-law wants to end every workday at 2 p.m. to go surfing? If everyone agrees to it, that might be fine. Should he make as much money as you do, working 10-hour days, shouldering more of the burden of running the family small business? It depends. Perhaps he provided all the start-up money, brings in the biggest customers, has to travel 70% of the time. Whatever agreements you come to, make sure you put them in writing to reduce misunderstandings and conflict.
- Decide how you’ll make decisions. Having a clear and fair decision-making process avoids lots of fights and bad feelings among family members. As the owner, you may want to retain all critically important decisions yourself — just be clear about what types of decisions others can make, and then let them make them.
- Conduct performance reviews. Be objective and constructive about it. Leave anything that happened outside of the office out of performance reviews.
- Keep family dynamics out of the workplace. Keep it professional when you walk through the office door. Try not to bring negative old patterns of family interaction into the workplace.
- Work toward the best but plan for the worst. Your business may fail, you may have to fire your sister, you may decide you’d enjoy working on your own, or you may divorce your business partner, who happens to be your husband. If you have a plan, you won’t be scrambling if a worse-case scenario comes to pass.
- Come up with a succession plan. You may want your company to bear your name 100 years from now, but does the rest of your family? They might not want to continue running the business, they may not be capable of doing so, or on the flip side, some of them may fight over who gets control. Come up with a plan now.
It’s not all bad, as Entrepreneur points out: Trust is the foundation of any successful business relationship. When you combine the power of your different skills and channel your love for each other into your business, you’re setting up your company to win.
Besides the tips above, if you are currently in or are considering getting into a family-owned business, we highly recommend you seek the counsel of your CPA and attorney early in the process. Professional advice is more effective if obtained prior to something going amiss.
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