So, you’ve finally decided to start your own business. Better yet, you’ve chosen to partner up with the people closest to you: your family members.
Starting a family business can be a rewarding endeavor, but it’s not without its challenges. Follow these tips to ensure your family business hits the ground running.
Consider Your Business Entity Type Early
When you’re first starting a family business, it can be hard to tell what it’s going to evolve into over the years, and so it’s difficult to determine what type of business structure you should establish. The five types of business structures are sole proprietorships, partnerships, corporations, S corporations and Limited Liability Companies (LLC). Each business structure type has different tax implications and different tax forms you will need to fill out every year.
Establishing your business structure is usually much easier and much cheaper when you’re first getting your business up and running as opposed to doing it three to five years later. Consult your lawyer and CPA and let them talk through what your business could become if it really takes off and what business structure you should establish. This should be done about the same time as you are consulting your banker to get your financial accounts and business loans established.
Have a Succession Plan in Place
It can be hard to imagine running your family business without your closest partner, whether it be a spouse, sibling or parent. You need to be prepared in case they pass away or are otherwise unable to manage the business with you anymore.
While it can be costly, it’s important to consider purchasing life insurance to ensure that you can maintain and continue managing the business without taking on insurmountable debt if your partner passes away. If it is a sibling that passes, this could also help you pay your nieces and nephews if you must buy their shares of the business.
Leave Money Invested in the Business Each Year
People who are new family business owners may be tempted to withdraw all of the profits after a successful year. While paying yourself a salary is important, it’s also important to keep cash invested in the business to make sure you can cover business expenditures, including unexpected maintenance and repairs for your building or equipment. Leaving money invested in the business could also support expansion opportunities in the future.
In a family business, everyone may have a hand in managing certain aspects of the company, but it’s still important to have established roles and responsibilities for each person involved. Have regular meetings, whether daily, monthly or quarterly, to provide updates on where the business is at, where you’re going and what everyone needs to do to ensure success. Let everyone have a chance to say what they are thinking so family members are on the same page and there are no surprises.
Be Patient With Family Members and Give a Lot of Grace
They say that people, especially kids, reserve their strongest emotions for those they love the most. Someone working in a family business may not speak to their customers at the counter the same way they speak to their family business partners behind the scenes when they get upset with each other.
Working with your close family members could be a match made in heaven – or it could prove to be a challenge. Every family member can have little things about them that can drive you up a wall. These characteristics can be amplified when you work alongside someone each and every day.
It’s important to stay patient and give a lot of grace as you work through problems with your family members and your shared business.
Contact a Small Business Banker
Communicate with your banker to help get your business up and running with financial accounts and small business loans. Staying in regular contact with your banker can help avoid surprises and can help you stay ahead of financial challenges.
Contact a small business banker at Northwest Bank to learn how we can help your family business thrive.
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