Do you want to start a family business at home to make money or make your kids smart? If YES, here are 20 tips on how to start a family business successfully.
Family businesses are firms where multiple members of the same family are involved as major owners or managers of a business. Family-owned businesses now operate in every country in the world and they are regarded as the oldest form of business organization that has ever existed.
Family businesses are said to account for about two thirds of all businesses around the world, and an estimated 70 – 90 percent of global GDP annually is created by these family run firms.
Additionally, between 50 and 80 percent of jobs in majority of countries worldwide, whether developed or underdeveloped, are created by family businesses. This phenomenon is not only noticed in America as 85.4 percent of China’s private enterprises are family owned.
Family businesses still thrive because they show a higher rate of profitability, and they are less likely to close down, even as they are more likely to hire even in the event of an economic downturn. Again, family businesses have a more long-term strategic outlook due to their main motivation which is creating a legacy for generations to come. They are less likely to raise debt and are widely deemed financially prudent.
Pros and Cons of Owning a Family Business
Family businesses come with a lot of advantages and this is why they have been able to thrive in the country despite all odds. Businesses started up by family members provide a number of advantages, and the most common is freedom, independence, and control. In addition, they also offer many lifestyle benefits such as flexibility.
One of the draw backs of starting a family business is that most family businesses find it difficult to implement a succession plan. In the event of the sudden demise of the founder, the remaining family members do not know where to begin to pick up the pieces. This is the reason why most family businesses do not succeed to the next generation as leadership tussles have crashed more than a few family run firms.
Succession becomes an issue when the senior generation does not allow the junior generation the necessary room to grow, effectively develop, and eventually assume the leadership of the business.
Family communication, conflict with relatives, and sibling relationships typically rank among the top ten concerns among family-owned businesses. When these issues conflict with shareholder value, it often becomes necessary to bring in an outside consultant to deal with them.
20 Tips on How to Start a Family Business at Home Successfully
A business idea can come from anywhere and any source. It could be an interest in the family, a collective hobby, or a creative idea that was just dropped by someone, but whatever the source, whenever a family decides to start a business collectively, they must follow certain procedures.
Since this business is not like an ordinary sole-proprietor business, certain things have to be put into consideration to protect the business both in the here and in the future. Following these simple rules would ensure you set up a very viable family business that can last for generations.
1. Appraise your idea
Ideas are usually the acorns from which businesses grow. You or a family member must have just stumbled into an idea of how to sell pizza with an awesome pizza recipe that was handed down from generations. This is a great idea no doubt, but you have to figure out if your neighbourhood needs another pizza palour, if people are likely to fall for grandma’s pizza recipe, if your neigbourhood is the right place for such business, if your family is dogged enough to run a business etc.
Note that everybody must be carried along in this discussion, because if some people are just not interested, then your idea may not see the light of day. If you have appraised all these and other related questions, and you are comfortable with your answers, then it is time to get things started.
2. Assess skills and experience
Look at the talents, experience, strengths and weaknesses of each member of the family and determine the best role for each person. Do you have someone who can work the grills, who can handle publicity, who can do the leg work, fill orders? Etc.
Note that you must not force everyone to join your ship, as not every family member would share your dreams. Only work with people who have indicated a certain level of interest. Gaps in experience or skills should be filled by employees outside the family.
3. Be ready for the worst
Business is an investment that can always go both ways, so everyone who is willing to lay down finances for the business should prepare for the possibility of losing his or her investment.
If three brothers for example are all going to invest money in the company, they each must understand that there is a risk of losing their investment. Find out everyone’s attitude towards risk and whether they can accept possible failure.
4. Bring everybody up to speed
Make certain all family members, not just those who will be working in the company, recognize the difficulties and sacrifices necessary to start a business. They may face a reduction in lifestyle because the company will not generate lots of money right away. Starting a company is time consuming. Family members may be away from home more than their spouses would like.
You should equally access their temperaments and make sure they can work together as a team without constantly being in conflict. The possibility of starting a business together can make or break a family. Some families come closer together in challenging times while others shut each other out.
Again, make sure all the family members who will be involved are enthusiastic about the venture and not doing it reluctantly or out of a sense of obligation.
5. Figure out how to find startup capital and how to share profits
Not many businesses can be started without finance, so the family has to figure out where to find their startup capital. Talk with each other about who can contribute what in terms of financial support. You should also talk about how profits will be split. You should also make a decision together about where you will find additional financial support.
Nothing should be left to assumption as money is always a source of conflict in family businesses where proceedings were not properly laid out. You equally need to sort out how each contributor would be paid back, and with what percentage.
6. Choose leaders
This process is quite imperative as it could provide another source of conflict. Deciding early on who will be in charge of what can help each family member have a sense of control and purpose. Assuming that you would sort this part out as you go along can breed fights and bad blood, so it has to be settled on time.
A key on how to choose leaders for your family business is to assess each person’s potential and decide where they would fit in perfectly. It is a fact that there are people who are natural leaders and organizers, so maybe you should leave such one to head the business. The extrovert and easy speaker should handle marketing and publicity etc. If roles are shared out with this criterion, it would make much sense to everyone.
7. Set up your business
No matter how small a business you want to set up, you should know that starting a business is no easy, it involves a lot of technicalities, and each step you miss would breed problems for you. If you cannot go the route alone, then you need to contact the Small Business Association (SBA). The SBA exists to help make the process a bit easier for you. In some cases, they may be able to help you find investors or secure a loan to get your business off the ground.
Even if you don’t need the extra financial support, it is still a good idea to contact them as they would offer you lots of information on how to get your business started.
8. Draw up a business plan
No matter how small a business is, it needs a business plan to guide it along. One family member might be in charge of writing this plan, but all family members involved in getting the business set up should have an opportunity to give their own input on how the business should run and make profit.
The family members involved in the business should have series of meeting to give their ideas on what they think would be the best action plan for the business. Anyone who is left out in any process may feel hurt.
9. Sort out location, license and permits
If your business would require customers to come into your shop regularly, like a pizza palour, then you should make sure to get a location that is in a visible area of the city. If your business doesn’t rely on people coming into a shop, then think about what kind of location would be suitable for your business.
As you are sorting out your location, you should equally sort out licensing and permits. Almost all businesses will require some kind of permit or license, and these may vary widely by country, state, and even city. You can also visit your state’s SBA if you are not sure of what licenses you need.
Don’t put off taking care of this. If you do, you could face severe legal consequences. You can delegate the acquisition of various permits to various family members in order to help keep the work spread even.
10. Complete Your business registration
To complete your business registration, you need to choose a suitable name. This activity should be done collectively to ensure that you come up with something unique. Since you are starting a family business, you might want to opt for a name that reflects the family-oriented nature of your business. You will need to register your business name, which will be called a “Doing Business As” (DBA) name.
11. Separate family from work life
It is always easy for family and work life to clash in a family business, but you all have to endavour to leave family issues back at home. Never make business decisions based on family sentiments and never make a deal when you are running high on emotions. Make sure non-family employees are treated just as fairly as family members, so there is no resentment among the non-family employees.
12. Separate Personal and Business Assets
Once you have established your LLC, corporation or other business entity, you need to set up business banking accounts that are separate from the owner’s personal accounts. Owners who commingle their business and personal assets regularly wind up on the Internal Revenue Service’s radar.
13. Establish a succession plan
One of the things that destroy family businesses is the issue of succession. It is on record that 80 percent of family businesses do not transition to the next generation because the families were unable to reach a consensus on transition. So, in order to avoid this scenario for your business, the family has to start planning for succession quite early in the business.
Deciding who will be your successor in a family business can be a tricky one, so it is essential you go through your options. It is natural to want to pass your business on to your children or close relatives, but they may not be the best ones to succeed you and you could risk upsetting non-family staff by overlooking them. A family member will be a much more worthy successor if they have already worked for the business and shown potential.
Think carefully on the sharing formula especially if about two or three family members are involved in the business. Point out who would take over which role, and who will succeed who. In doing thing, you would have succeeded in saving future generations a lot of stress.
In Conclusion, family businesses will continue to play a great role in world economies into the next century. So, taking everything into consideration would be your best bet at making your family business thrive. Try and be fair in all your dealings and make sure everyone is on the same page in order to avoid tension and potential conflict.
Running a family-owned business is hard work, and individuals need to have specific responsibilities in place if the company is to succeed. It is your responsibility to draw this up and make sure that it is followed to the latter. Do not hesitate to bring in outside help when needed. Sometimes families while running their businesses can encounter conflicts they cannot resolve alone and as such would need a mediator or a third party.