How to Start a Family Business

Individuals who start their own business often find that they would like to keep it in the family for generations to come, rather than pass it on to a stranger. While starting a family business might sound easy, it can often be more difficult, because the family dynamic can add extra tension and higher expectations. However, if you follow the steps below, you will be well on your way to running a successful family business.

Instructions

Difficulty: Challenging

1. Allow family members to become part of the business only when they meet certain requirements that you establish when you start the company, such as a business degree or experience in that particular trade or position. Consider listing those requirements in the company's bylaws, so that no exceptions can be made in the future.
2. Set company goals for as far into the future as you can fathom. This will help family members to know where you want the business to go and will encourage those who share the same vision to get on board. It will also give you piece of mind that, when you are gone, the business will be ran the way you intend.
3. Establish the roles that each involved family member will have in the company. Make the chain of command clear, so that there are no questions as to who makes the final decisions. It may help to write each members responsibilities down in detail.
4. Be open-minded and listen to family member suggestions regarding the business. Strong communication will help to provide a good work environment both at work and at home.
5. Put family first, even above the business, at all times. Establish clear working hours and keep overtime to a minimal. Keeping you and your family members happy at home is essential to making your business run smoothly.
6. Decide who gets to run the business when you retire or pass away. Make a succession plan at least ten years in advance so that preparation for the transition is made well in advance.
7. Have an estate plan in place as early as possible to avoid to protect the future of the business. This can be done through a will, buy/sell agreement or even a life insurance policy.

Tips & Warnings

• Establishing requirements for family member involvement in the business (see Step one) will help to ensure that the business is always run by competent individuals. Keep in mind that experience in the trade can easily come from your grandson spending a lot of time at the company and learning the trade directly from you.
• When dealing with conflict, be sure to determine whether the problem is personal or professional. Sometimes, a problem that may seem related to the business, actually goes deeper than that, to a personal level. That personal issue needs to be dealt with before you can resolve any business issues.
• Without an estate plan, your business will face estate taxes of 37% to 55% of the business' assets on the death of a founder or single business owner.
• Don't put higher expectations on your family members involved in the company just because they're your family. Be realistic and expect of them only what you would expect from any other employee, board member or co-worker.