Going into business with family can either be an extreme positive for the business or your worst nightmare. Family owned and operated businesses can can be tricky waters to navigate and if the proper steps are not taken prior to starting the business, it can have negative consequences that go beyond the livelihood of the business and infiltrate the family dynamic. However, if the right tools are implemented, it can have very successful results that last for generations.
One of the most important aspects is to make sure your business model, agreements, and contracts are drafted in the mindset of thinking of yourselves as business partners, not family members. It might be uncomfortable but it is important to differentiate the two, for the sake of your business. It can be a great idea to go into business with family because who knows you better than a sibling or spouse, but it is important to remember that the business comes first, especially because it can be detrimental to your team if you let family matters get in the way. Remember that beyond your leadership team there are other employees relying on you, so it goes beyond just your personal relationship and you need to remain professional above all else.
- draft partnership and operation agreements
- identify the strengths each family member brings to the endeavour
- create criteria for conflict resolution
- have a coach or outside mentor
- go for it
- delay creating partnership and operating agreements
- assign roles based on their social lives
- avoid conflict
- do your own books
- listen to the naysayers
Just like anyone starting a business endeavour, many family businesses start out with high hopes and lots of enthusiasm. In their haste they skip the important step of creating a contract and justify it by thinking it is unnecessary to have a signed business agreement if they are going into business with their husband, sister, etc. While that’s true, there will come a day of reckoning when they will need to reference those documents.
It is important to include percentage of ownership, rules for buyout, and what happens to the stock if a family member leaves the company for any reason, including death. The operating agreement (an internal document) should include the roles and responsibilities of each family member and guidelines for reimbursable expenses, expectations of hours worked, rules for bringing on additional family members, and so on. You might call it the rules of the game.
Profile each of the family members to identify their natural talents and strengths, which will help your business strategy and in the hiring process. Examples of profiles that you could use include, DISC, a behavioral profile, Strengthfinders, identifying natural talents and Wealth Dynamics, which identifies the way people naturally create wealth and how to get into that flow. With these profiling tools the assessments point people in the direction of their maximum contribution to the business.
Family members really know how to push one another’s buttons, so there will be more conflicts at the office because of this. It’s not if you have conflict, it’s when, so it’s important that the criteria for resolving conflict be established in advance. Calling in a professional mediation can help bring an unbiased viewpoint to the conflict your family business is experiencing.
Having someone committed to the business that’s an outsider is vital to keep things moving along in the right direction and help resolve barriers to growth. Hire a coach that has experience with family businesses in particular can help your whole team navigate and identify problems, keep your plans on track, and ensure your goals are met. Be sure to ask the coach about their expertise and experience before hiring them.
At the end of the day, no one in the world will have your back like a family member that you love and trust. There is a certain natural ebb and flow when families go into business together and when thought out well and all the proper tools are in place, a family owned and operated business can be a beautiful thing and extremely successful.
Although it may seem uncomfortable to sit down and create partnership and operating documents with family members, the headache and heartache you prevent by having them in place is priceless. You can start with a sample agreement that can be downloaded from the internet which will act as a template to help you prompt your thinking and avoid having to start from scratch. Once the agreement has been drawn up make sure to have your document reviewed by an attorney to finalize.
Don’t assume that because someone is an extrovert they’ll be good a sales or the introvert will be good at bookkeeping – how someone acts socially can be the opposite of how they operate professionally. You need to know the competencies and the natural abilities of each family member to assign them the ideal role. A common pitfall is to collapse someone’s education or experience with their natural abilities. When someone is working to their strengths they naturally produce results with ease.
Most family members will avoid confrontation, especially husbands and wives because they will often take their office conflicts home with them, so they avoid it all together. This leads to unresolved, underlying issues that will drain productivity and profits from the business and eventually build up to huge costs both personally and professionally.
Family businesses often try to save a wage by not hiring a bookkeeper or outside accountant, which ends up costing them a fortune in the long run. Be sure to have an experienced bookkeeper working on your financial statements. The finances of the business are the scorecard and the lifeblood of your business. Don’t skimp here.
Many people will tell you it’s not a good idea to go into business with family and while that’s sometimes true, ask if they have had a family business and if they took all the necessary steps to insure workability in their endeavour. If they have not and you have taken the right steps, politely decline their advice.
If you’ve addressed all the aforementioned do’s and don’ts then you’ve done what can to set your family business up to win and for long-term success. Now go make it happen and enjoy creating memories and a business that will thrive and can be passed down through generations of your family.