Starting a business with your family is no walk in the park for most people. However, some of the world’s most successful corporations are family-owned and run businesses. Examples include Walmart, Ford, Dell, and BMW, to name a few.
While many families are already involved in some kind of work relationship with each other concerning their family business, several important considerations often get overlooked.
Now, family units are close and intimate, which is a precursor to trust. But wherever money is involved, there comes in a factor of potential conflict.
So if you are a novice in the world of doing business with your relatives, here are some things to consider before you take the plunge!
1. Formalize Everything
One of the most important things to keep in mind when beginning work with family members is to avoid obscurity and vagueness.
Sure, there will be some uncomfortable conversations revolving around why you as a family cannot have formalized expectations.
However, formalizing business-related matters prevents a great deal of animosity if things don’t fall through as expected. Stipulating the working relationship sets clear boundaries, lays down job requirements, clarifies finances and transactions, and sets you and your relatives on a trajectory of success by maintaining professionalism.
It also helps you avoid the common troubles that familial business relationships face in terms of partners slacking off, siphoning off money, and compromising finances and efficiency simply because they are related by blood.
Also, it’s essential to note that courts don’t consider business deals between family members legally binding. This makes it even more important to formalize everything in the beginning in the form of contracts — so that you don’t get the short end of the stick simply because you were in business with your family.
2. The Big No — Nepotism
Hugely successful family businesses with strategic planning and management face a considerable hurdle in the form of nepotism. Just because you partner with your relative does not mean your business has to be handled entirely by the family.
Sure, your cousins may want a piece of the profits, but you should always consider their efficiency and value proposition for your business before your relationship with them as your family.
Now, instilling a culture of meritocracy in your company starts with yourself. Just because you are the boss in a family venture doesn’t mean you give yourself leeway. By setting an example of efficiency and professionalism, you should create a culture that expects — and rewards — merits.
If you have a cousin you don’t particularly like but know can immensely improve your supply-chain risks and issues or make sure you have integrated payment systems (using a payment provider like Smartpay), hire them through a fair process.
Promotions, pay scales, leaves, bonuses, insurances, stipends, dividends, appreciation, and much more, when relegated fairly, will help you avoid the cardinal mistake of nepotism in a family business.
3. Consult Unbiased Parties
It is tough to be objective when emotional connections to family members interfere with the logical and rational realm of business relations.
For this reason, you should always consult the advice and arbitration of a third party to resolve any business conflicts or blind spots that arise.
While it is always advisable for resolutions to happen internally before things go south with the business, a lawyer or an outsider who is equipped with both sides of the story can help you in a pickle. Avoiding confirmation and negative bias are mandatory components of any enterprise, and the involvement of a third party can overcome what would otherwise be a very emotionally-charged conflict.
An arbitrator to a family partnership should not be cold and calculating and should always look to preserve the most important thing — your relationship. When preceded by having the foundations set in formalized writing or contract, an unbiased party can intervene where they feel you and your relatives are not finding common ground.
4. Succession Plans Are Mandatory
Just like normal businesses, your family business should also have risk-management and succession strategies in place. So consider them among the most important factors that affect
the future of a business that you are creating from scratch.
Unfortunately, a succession plan can cause strife (just like wills and inheritances). But it sets your business’ direction before uncertainty could occur. So if you want to pass down the business partnership/ownership to another family member, make sure all parties are aware of this decision.
On the other hand, if you are looking to hand over the business externally (or close down your company), consider that your family also has personal, financial, and emotional stakes.
The essential components of a succession plan consist of centralizing not just future leaders of your business, but also incorporating development efforts and curating your hiring strategy around the plan.
5. Remember Your Roots
Nothing is more valuable than family, and when the going gets tough, revisit why exactly you want to start a family partnership to begin with.
Reminding yourself of the role your family plays in maintaining trust, accountability, and confidence in all business pursuits can be a very effective consideration before embarking on this adventure with them.
But again, analyzing the merits of the situation and the potential backlashes is possible only if you formalize your roots. So record and remember why you began the journey, and it is sure to be a smooth-sailing one.