Whether you’re considering strategy or vision, expectations or needs, short-term or over the long-run, the success of almost any business startup is in the planning. With a family-run business, the planning process is even more vital. You need to build a sturdy bridge over any troubled waters.
This is part 1 in a series of Frugal Family Business Tips and Resources
What Makes Family Business Startup Different?
In my Frugal Small Business Startup Series, I mentioned how vital it is for entrepreneurs and new small business owners to spend some time thinking about their business before making too many decisions. In particular, I stressed the importance of writing out a business plan, and I highlighted a quote from SCORE that I will include here as well:
The real value of creating a business plan is not in having the finished product in hand; rather, the value lies in the process of researching and thinking about your business in a systematic way. The act of planning helps you to think things through thoroughly, study and research if you are not sure of the facts, and look at your ideas critically. It takes time now, but avoids costly, perhaps disastrous, mistakes later.
With a family-owned company, not only does the above apply, but there is a balancing act added in the mix. The whole house can come tumbling down in a whirlwind of old hurts, egos, expectations, and immutable family dynamics. What many families fail to realize is that the same core competencies that can give a family-owned company an edge over its competitors, can make operating it unbearable. Family owned firms in particular tend face many challenges, any combination of which can bring a company to its knees:
- No unified vision or mission
- A lack of clear and documented policies, procedures, values and business norms
- A lack of documented business strategies for operations, growth and succession
- Role confusion, misplaced talent and skills, and gaps in experience or know how
- In adequate or inappropriate compensation among family members
- Ineffective communication due to family dynamics and unresolved family issues
- The impact of family-wide emergencies, such as divorce, financial crises, and poor health
- Problems bringing in non-family employees
Tips for Planning Your Family-Owned Business
With this in mind, here is a collection of tips to help get your family business started on the right foot. For more information on how to incorporate these suggestions, see the resource list below.
Setting aside time to plan. Since family members tend to spend a lot of time together it may not even occur to them to set aside time for formal business meetings. Business talk is not “dinner talk,” though it may naturally overlap from time to time.
This family business meeting should not be a solitary event either. Creating the space and the time to formally discuss long-term planning objectives and procedures should be conducted on a consistent, re-occurring basis. It’s a given that things may change, and goals and expectations may need to be re-aligned. By setting aside the time to discuss these issues, you can make sure your business stays on course.
Is everyone on the same page? If you will all be steering the ship together, then you have to make sure that everyone is going in the same direction. What are you hoping to achieve? Where do you want the business to go, and what do you want to avoid? The collective dreams and expectations set by individual family members can form a powerful vision for the future. From there you can see how you want to work together, and it can serve as a guide to propel the business forward.
What makes your family tick? Its important to consider what makes you and your family unique and to understand the dynamics that exist between family members. After getting in touch with your family’s unique character and flavor, you can then go about designing your family business around it. That is, you should try your best to go along with it your family’s style. This goes for individual family members as well. At the beginning, you might want to leave some room for members of the family business to naturally gravitate to those areas that “speak to them,” or that they are good at.
Deciding who will be involved and how. One issue that you will need to clear up early on is deciding who will be a part of the family business both today and tomorrow. Will everyone in the family automatically get a job, or are there some limitations? Will there be any necessary qualifications to employment? Are you looking for education or other outside experience?
Individual family members should talk about what they feel they bring to the company, and what they feel the rest of their family members bring, in order to give people appropriate roles and responsibilities.
Determining compensation. Like the tip above, in some families deciding what to pay and to whom, can be like a big tinder box just a spark away from a fiery inferno. While it almost goes without saying that you should do your best to set up a fair system of compensation including benefits for all involved family members, if it is a sensitive point in your family then all the more care should be given to this area. That translates into deliberate and objective consideration as well as the clear and formal documentation mentioned below.
Get it in writing. Get as many agreements done in advance as possible, Focus on drafting agreements, clear expectations, and assigning clear-cut roles to family members. It is highly recommended that all the family members document their relationship to the business in a formal business agreement. The document should, at a minimum, include duration of the agreement, partners’ capital contribution expectations, and divisions of profits and losses. You can also include salaries, job expectations and terms upon which the partnership may be dissolved. Do it even if it feels awkward or unnecessary since it is there to protect all the invested parties.
Frugal Resources to Help You Plan Your Family-Owned Company
I will soon be publishing a post with a comprehensive list of resources for family-owned businesses, but here are some free or low-cost resources to help you at the planning stage:
SCORE- This non-profit organization matches businesses owners and entrepreneurs up with expert mentors.
A list of university-based centers for family business at fambiz.com. These centers typically offer an assortment of consulting, workshops, and other assistance for local, family-owned businesses.
The Family Business Network A network of family business owners.
Some family business books I recommend reading:
- Generation to Generation: Life Cycles of the Family Business by Kelin E. Gersick, John A. Davis, Marion McCollom Hampton & Ivan Lansberg
- Strategic Planning for the Family Business: Parallel Planning to Unite the Family and Business by Randel S. Carlock
- Perpetuating The Family Business: 50 Lessons Learned from Long Lasting, Successful Families in Business by John Ward
- Keeping the Family Business Healthy: How to Plan for Continuing Growth, Profitability, and Family Leadership by John L. Ward
- Succeeding Generations: Realizing the Dream of Families in Business by Ivan Lansberg
- Family Legacy and Leadership by Mark Daniell and Sara Hamiltom
- Family Business 3E by Ernesto j. Poza
- Keep the Family Baggage Out of the Family Business: Avoiding the Seven Deadly Sins That Destroy Family Businesses by Quentin Fleming
And finally, be sure check out The Frugal Entrepreneur’s list of free and low-cost online small business resources.