Starting a business with family members can be a positive step toward building generational wealth. According to Ramsey Solutions, 60% of the U.S. workforce is employed by family-owned businesses. They are the backbone of American commerce. SCORE tells us that 19% of the 28.8 million small businesses in America are owned by families.
A family-owned business can be the fulfillment of the American dream for your loved ones, but it can also be challenging. In Dickensian terms, running a family-owned business can easily be “the best of times and the worst of times” all in the same day. In this article, we’ve compiled a few tips to help you cultivate the positive side of that condition.
What makes a business family-owned?
SCORE’s definition of a family-owned business is “any company that is operated by two or more family members.” One of the more popular examples of this is a corner pizza place or grocery store owned by two siblings. How many times have you seen a “Brothers Pizza” in your travels? It seems like there’s at least one of them in every town.
Family-owned businesses aren’t always “Mom and Pop” operations. Hunt Brothers Pizza, which is owned by four brothers, has 9,467 locations. Walmart, which is owned by the Walton Family, employs 2.1 million associates in 20 different countries—and 1.6 million of them are in the United States. Berkshire Hathaway, owned by the Buffetts, has a net worth of $778 billion.
How to set your family business up for success
The Hunts, Waltons, and Buffetts were successful because they made the right decisions when it came time to grow and expand their operations. Family-owned businesses don’t get to that point unless they have systems and processes that run smoothly. Efficiency is the rock upon which you can build your company. Here are some tips to help you sustain and grow your family business.
1. Communicate effectively
Working with family can be hard. The people closest to us know our strengths and weaknesses, so expectations may be somewhat skewed. The best way to overcome that is to operate with a high level of effective, transparent communication. Make sure everything is out in the open for all relevant parties to see, particularly when it comes to money issues.
2. Set clear boundaries
Setting boundaries can be difficult when family members run a business together. Make it clear that business should be conducted in a business environment, not at the family dinner table or backyard barbecue. You’ll also want to clarify which family members will be involved in the decision making. Inviting everyone into the inner circle could create chaos.
3. Hire non-family members
Bringing in employees from outside the family can expand your perspective and fill in the gaps of expertise and skillsets that family members might not have. Outsiders also don’t have the sense of entitlement that you might experience with siblings or spouses. They’re a healthy addition for most family-owned businesses, as long as you properly screen them.
4. Treat everyone like family
When you hire team members from outside the family, you shouldn’t treat them differently than you would if you were related to them. That means making them feel welcome, not giving them access to the business bank account. Schedule team meetings where everyone has an equal say, run team-building events that are all-inclusive, and promote people based on merit.
5. Make the tough decisions
Family members may be interested in positions they’re not qualified to fill. That won’t be an issue if you treat everyone fairly. Promote based on skillset and track record, not because they share the same blood as you. There will be family members who don’t like that, but basing your advancement decisions on merit is better for the longevity of the company.
6. Establish your vision
Unity of purpose is what separates thriving companies from stagnant ones. Collaborate with your partners and create a vision that everyone can get behind, both family and non-family members. Follow that up with a mission statement and a plan to establish a company culture that can extend beyond your family. Inclusivity is a key to growth and scale.
7. Put everything in writing
Business is business—put everything in writing. That includes roles and responsibilities, partnerships, compensation, and exit strategies. Get it down on paper and make sure all parties sign it to acknowledge their agreement. Documentation prevents misunderstandings that could cause a rift during times when you need everyone on the same page.
8. Create a succession plan
Draw up a plan for how your business will continue into the next generation. By documenting this, you’ll be able to save relationships and avoid the same conflicts that the recent HBO show centered around. No one wants their children fighting with each other over money. Make sure everyone knows who gets what when you decide to exit from the business.
Planning for the future
Succession plans are important, but they’re not the only thing you can do to prepare your family business for the next generation. You’ll want to ensure that your successors inherit a company that has a solid infrastructure and growth strategy in place. Here are some ways to do that:
- Retain and develop talent, both in and out of the family: Provide adequate compensation and a rewards system for achievements so your people don’t choose to leave you after they’ve “done their time.” Give them a sense of ownership so they want to stay and continue to build with you.
- Prioritize professional development: Supplementing or reimbursing for college tuition adds value to your company that will attract top talent. You can strengthen your company by providing internal education and training to help the best employees advance.
- Be transparent about business goals and operations: Employees want more than just big salaries. Money helps, but they also need to know why you do what you do. Be transparent about your goals and ask for their feedback on how to meet them.
- Develop a transition plan: You probably don’t want to spend the rest of your life running this business. Develop a transition plan to facilitate your eventual exit. You can still be involved after that as a board member or advisor if you want to.
- Have emergency protocols in place: Develop action steps you can take in the event of damage due to fire, another pandemic, extreme stock market volatility, or natural disasters. These are all real threats the 21st century has thrown at us.
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