How to start a family business

By on May 27, 2013

You’re fed up with working for some soulless corporation and want to set up a business, but aren’t sure about getting into bed with a group of strangers. So why not team up with members of your own family?

Pick your partners carefully. Going into business with your siblings, cousins, parents or children isn’t a good idea just for its own sake. ‘Ideally, you want parties with complementary skills who’ll get past the start-up phase,’ says Juliette Johnson, head of UK family business at Coutts. ‘But you also want to have a good relationship – or why do it?’

Think values. The common agenda when starting out is usually the reputation of the family in their community, says Ajay Bhalla, professor of global innovation management at Cass Business School. ‘It is a long-term investment and the people you recruit need to represent your values.’

Don’t bet the farm. ‘In an ordinary business, you may offer security such as your own capital to secure funding,’ says Bhalla. ‘But family businesses need to be more risk averse. I’ve seen some where there’s one entrepreneur and the rest of the family contributes. When it fails, everybody pays.’

Get ready to muck in. Each of you has strengths and weaknesses, but in the early days, you will have to pull up your sleeves and do whatever needs doing, rather than demarcating rigid areas of responsibility.

Guard against conflict. Family businesses are especially vulnerable to conflict because of the complex relationships within them, says the Institute for Family Business. It advises: ‘Understand the special tensions created by being in business together – and be prepared to work as a team to monitor the causes of conflict, build trust and solve problems.’ Family rituals such as weekend gatherings or birthdays can relieve pressure, says Bhalla.

Agree on money. Keep remuneration and shareholder returns separate, to create greater transparency and consistency. ‘Family members tend to draw little from their companies early on and reward becomes more of an issue as they become successful,’ says Johnson. Then pay market rates for the job.

Put it on paper. Many family businesses create a constitution to govern how decisions are made; a shareholder agreement is the minimum you should start with.

Be inclusive. Spouses and in-laws who aren’t involved may still be affected by the business. ‘Women are often the silent force in family businesses, which can be positive or negative,’ says Bhalla. ‘Explain to spouses the effect of particular circumstances,’ says Johnson. ‘For example, if their partner died, would they inherit a share of the business?’

Look outside. A respected third party can fill in gaps in your expertise, and act as a sounding board and arbitrator. Try your accountant if there’s nobody else.

Do say: ‘This is bigger than any of us – it’s family.’

Don’t say: ‘You’re just as selfish and annoying as you were as a child.’

 

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