How to Start a Family Business

Understanding Family Business.

What do you understand about family business?  What does it mean to start and run a family business? I consider this topic to be very important to anyone starting his or her own business. This is because a lot of people start a business which can be described as a family business unknowingly. Before I continue with this article, I will like to make certain clarification about what a family business is all about. If your business is jointly owned by your family members, you are running a family business. That does not mean that there are no outsiders as members of the business. It simply means that your family members have the greater percentage of the stakes in the business. On the other hand, a family business may mean that the business was started by someone in the family and the business is now passed down to you and other family members to run and manage. By extension, I will say that a sole proprietorship can be a family business. How? If you start a business that you don’t want it to die with you but rather have an intention of passing it down to your children or other family members, then such business can be considered as a family business.

Please, note that family business is not a specific business in particular. It can be any business whether online, home based, manufacturing, trading etc. It is not the type of business you do that makes it to be defined as a family business. It is rather more of the structure and the operation of the business. It is important to mention that family business has its own peculiarity. The same way a family business can promote unity in a family, family business can also cause chaos and disunity if not properly managed. The early you are aware of this fact, the better and the greater the likelihood that the family business will success. Instead of running away from family business because of the likely attendant disadvantages it may bring, I will suggest that you master what it takes to run a successful family business instead. The benefits of having a family business are enormous. I will like to quickly discuss few of these benefits. May be, you can be encouraged to see why starting a family business can be a good decision.

Read Also: Home Based Business Guide – Work from Home

Benefits of Family business

  1. Every successful business is built around certain core values and family business is not an exception. The challenge of bringing different people with different values to start a business is eliminated when you run a family business. The reason is that, if you are starting a business with your family members, you will likely share the same values and beliefs. Therefore, to agree on how things should be done in the business will not be difficult because you share the same values.
  2. Family members are likely to be more committed to ensuring the success of the business. They will not mind putting in extra efforts so that the business can become a success in order to have a legacy for their children or generations after them. Of course, they will also like to protect the image of the family.
  3. Trust: If you want to start a business with another person, it is not just about the skills of the person or the money the person will contribute. You need someone you can trust. It is actually difficult getting a partner that can remain loyal to the course of the business overtime. But in a family business setting, you know the background and history of every member of the family. In time of difficulty, a friend or partner can run away from you. But your family will remain your family. That is why they say that blood is thick than water. Family tend to stick together in time of difficulty and ensure solution to the problem or challenge that may be confronting them.
  4. Growth focus: One of the undoing of some collapsed businesses is their inability to think long term. They belief in instant profitability. Instead of ploughing back their profits, members of the business would rather prefer to share the profits and this attitude usually inhibits growth. But since you are building a business you can pass on to the next generations, you will like to think more of the future of the business. This also applies to the issue of salaries and allowances of active members. Active members may be encouraged to accept lower pay compared to what the business would have paid an external person. This savings will translate to higher profitability.

With all the benefits mentioned above, I like to emphasise that they are not automatic. You need to put a good structure in place before you can enjoy the stated benefits.  There are certain issues you need to address right from the onset. These include the following:

  1. How do you want the want the business shares allocated among the family members? Remember that this is a family business. It is important that greater per cent are allocated to the family members while fewer are left for non family members if there will be any.
  2. You must ensure that roles and responsibilities are allocated based on individual skills and expertise without any prejudice. You should not put square peg in a round hole.
  3. In decision making, personal issues should not be mingled with business decision. That is only way you can ensure that all business decisions are very objective. When it comes to business decisions, you assume you don’t know anything about the personal matters of your family members. Otherwise, you will not know when you begin to show sympathy for your family members at the expense of non-family members. In order to be very objective in decision making, you may chose to appoint a non executive director to be part of the Board.
  4. You need to be clear about the remuneration. Family members can chose to make some sacrifice by accepting lower pay. Will the same remuneration apply to non family members? If not, is there any other compensation plan for the family members that are active in the business? When it comes to remuneration in a family business, a lot of factors comes into play. For instance, family businesses are known to be frugal and conservative. Therefore, they don’t set too high salary for themselves. This may be an attempt to lay an example for other employees. If the owners of the business are receiving average pay, it may be difficult for non-family staff to expect high salary. Also, in order to retain good staff, there may be need to offer salaries that are above average. What of the issue of appraisal and salary review. Imagine a husband reviewing the performance of his wife. How objective can the man be. Even, if he is objective, can he be seen by other non-family staff members to be objective? Except there is a written constitution on how to handle all these issues, you will realise that it is easy for someone to continue shifting goal post in order to favour situation at hand.
  5. How would you resolve conflicts when they arise? The question is not whether conflicts will arise or not. It will definitely arise. Conflicts can be caused by many factors such as determination of compensation, rivalry, perceived favouritism, jealousy on introduction of extended family members.  It can also be caused by the need to change roles and responsibilities among members. You need to agree on how such conflict will be resolved before they ever arise. It is important that you don’t take business conflicts home. Otherwise, this may lead to tension at home. The best way is to ensure that you don’t discuss business matter at home. Ensure that every business discussion ends at work place. However, as situation may occasional demands, there may be need for retreat, where issues bothering the family can be discussed, including business matters. If a crisis occurs and the family is not able to resolve it amicably, this can lead to the split of the family business and this can derail the entire business. In conflict resolution, everything lies on how effective the family members are able to communicate. It is always better to identify crisis early enough and resolve it before it escalates.
  6. You should understand that family hierarchy may not be the same in the business. When a younger person happens to be the boss, how would the elderly cope with this situation? Respect should be given to anybody who is occupying a leadership position regardless of his age. If care is not taken, over familiarisation may lead to disrespect.
  7. A very important aspect of any family business is the issue of succession plan. The main objective of having a family business is to be able to have a business which can be passed to the next generations. You need to ensure that the person that will take over the management of the business is properly groomed. He must possess essential business and leadership skills that will guarantee effective management of the business. It is always advisable that you allow the person that will likely take on the leadership of the family business to join the business early enough. You should be willing to give young ones chance to demonstrate their potentials. At times, young people may have better ideas and strategies. Remember that no matter the skills, the person should also be willing to take over the management of the business. Otherwise, forcing a member of the family to run the business may not yield desired results.

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