Why Doing Business With Family Is Powerful (and How To Do It Right)
Setting up a family business has always had a bad rap. Many often wonder, "why do people caution against doing business with family?" From little boundaries to lack of control and greater liabilities, it's a wise choice never to mix business and family. You wouldn't miss the lack of accountability that may result from running a company with your household.
However, this is not to say that there aren't any successful family businesses. Otherwise, companies like Walmart, Ford, Cargill, Mars, and thousands more would be quick to prove us wrong. However, the point is that family businesses aren't a walk in the park. But, you can make yours work if you understand the peculiar challenges and know how to manage them correctly.
So, if you wish to run a company with members of your bloodline, don't let the nay-sayers discourage you. There are foolproof rules to live by that can make it a not-so-difficult journey for you. There are also numerous reasons why we may even recommend that you start a family business.
We'll show you in this article.
5 Reasons To Start a Family Business
The following reasons make running businesses with family enticing:
Passion drives commitment, and there's no other person more willing to make the business succeed than your family members. For family businesses, it's more than just making a company grow. It's also about securing the family's reputation and meeting its financial needs.
Family businesses stick together despite the challenges they face because they have a lot at stake. Their unparalleled commitment to the business makes them loyal at all costs.
Decreased Costs and Expenditures
The main goal of any business is to maximize profit and reduce costs. Family businesses are more adept at achieving this all-important objective. When family members run an enterprise, they're more likely to contribute personal finances to keep it afloat than non-household members. This helps to build financial capacity for the business in difficult times.
If you've ever worked on a project with an untrustworthy person, you already know how distressing it can be. A lack of honesty and transparency among business partners can put the company at risk of adverse legal consequences. Fortunately, trust and transparency are typically not an issue with a family business. Trust is the basis of family-owned enterprises.
In companies owned by a household, the members understand and have faith in one another. As a result, they can argue and discuss matters openly without fear. This trust culture improves innovation, creativity and drives growth.
Family members come together to build businesses that outlive them and can pass from generation to generation. This encourages long-term planning that requires stability in leadership and business policies. A stable structure is always essential for a company's growth and development.
Relaxing Work Environment
Family businesses typically create a conducive and friendly work environment for everyone. With flexible breaks and a relaxed atmosphere, employees are more mentally equipped to perform their duties optimally.
Essential Rules for Starting a Business With Family
Now that you understand the advantages of setting up a family business, how can you deal with the challenges? These best practices can help you avoid and manage the difficulties peculiar to family enterprises:
Have Clear Business Goals
The excitement of starting a profitable venture with your loved ones can quickly obscure the need for a clear vision. However, when the excitement wears out, it's dedication to the company's shared objective that keeps it going.
It's important to come together and deliberate on the business's goals and objectives before setting it up. Then, ensure you write them down in clear terms so everyone understands and can always refer to them at a later date to avoid the age old “he said she said.” Have all parties involved sign what was written down. This can literally be written on a napkin or scrap piece of paper.
If it’s not written down, it never happened.
Separate Work Life From Home Life
One of the challenges family businesses face is a lack of boundaries. Family life can easily interfere with work and vice-versa. This will increase your risk of exhaustion and affect your private life adversely.
So, make it a rule never to bring work home or attend to family matters at the office. This is a fundamental secret to managing a flourishing family enterprise.
Practice Good Governance
Good governance refers to accountability, transparency, diversity, responsibility, inclusiveness, and responsiveness, among leaders in an organization. One way to ensure good governance in family businesses is involving at least one outsider in the day-to-day management. Including non-family members in the company's supervisory and advisory board helps to effectively check and balance business activities.
Always Put Agreements in Writing
While the bedrock of family businesses is trust, it's still essential that every agreement is in writing. Sometimes, genuine misunderstanding may arise regarding the meaning of policies, duties, rights of members, etc.
Without a written contract, these little disagreements can escalate to full-blown conflict. Written contracts ensure that members can always refer to prior agreements whenever conflict or misunderstanding arises.
Have a Solid Conflict Resolution Structure
Disagreements are always bound to happen in any organization. The key to overcoming them is having a conflict resolution process that everyone can trust. This refers to a fair and transparent strategy to restore peace among disputing business members.
The Harvard Law School identifies negotiation, mediation, arbitration, and litigation as effective ways of resolving workplace conflicts. You can decide what methods work best for your family business.
Set Your Business With BetterLegal
If you've decided to start a family business, the tips above are useful guidelines. However, the first step is building your business' legal structure on a solid foundation.
The processes for starting a new enterprise can be daunting, and any mistake can cause long-term adverse consequences. Our dedicated financial experts/business consultants offer you seamless business start-up services at affordable prices.
Regardless of your location in the USA, BetterLegal services are fast and reliable. We can help you set up your company in 2-5 business days. From business education to tax preparation, etc., you can count on us or our curated list of partners for the best services for your brand.