If you love spending time with your family, you might think working at a family business would be a dream job. That dream could quickly turn into a nightmare, however, if you don’t start things out on the right foot. Before you and your family members all cast your lots in together to start a business, do yourselves a favor and follow these simple dos and don’ts.
DO come up with a small business plan. Whether you’re working with family, friends or relative strangers, it’s important to follow all of the standard procedures for starting a business. Your business plan should clearly define the concept of your business, how much money you’ll need for start up costs, where and how the business will fit into the current market, what type of return on investment should be expected and all other relevant information.
DO put job responsibilities in writing. Each member of a family business should have a clearly outlined role from the beginning. Vague roles lead to confusion, and confusion leads to conflict. Someone should be in charge of the clan, and the rest of the family should agree to that person’s authority. If you decide to leave big decisions up to the group, then you should come up with a plan to determine how to manage disagreements.
DO spell out the rights of investors. If someone from the family either inside or outside the business contributes financially, the terms of that contribution should be put in writing. If the contribution is a loan, write out the terms of how that loan is to be repaid, including interest terms. If the contribution is an investment, write out what the investment entitles the investor to (part ownership, dividends, voting rights, etc). It would be wise to have an attorney draw up those papers.
DON’T cut corners. When working with family, there’s often the tendency to slack off a little. You may think your family will be more forgiving, but family members are often more critical of each other.
DON’T bring family disputes to the workplace. Agree ahead of time to keep any personal problems out of the business as much as possible. Running a business creates enough drama that you don’t need to add to it with family drama.
DON’T leave family members open to liability. Family businesses can and should be either incorporated or set up as limited liability corporations (LLCs). Either one of these business entities can protect you and your family members from personal liability if the business doesn’t do well.
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