Draft Agreements
It seems awful to have to sign contracts when you want to go in business with family. It could be seen as a sign that there is no trust between the two parties. It’s also very difficult and awkward to ask your sibling to sign a partnership and operation agreement, but it’s the only way to protect yourself and your business if the day comes that you need to dispute for the legal custody of your business. When drafting such agreements, including the equity percentages owned by specific parties involved as well as other key details, such as requirements for a buyout and what happens to the equity percentage of a family member when he/she leaves the business.
Identify Strengths and Weaknesses
It’s not enough to give a percentage of your business to someone just because they are family. They need to be able to bring something to the table otherwise there is no point naming them co-founder. Assess each family member’s natural strengths and skills, which can help in devising a business strategy that aligns with these identified strengths. It does come easily to objectively identify the strengths that each family member has since you’ve spent a fairly considerable amount of time with them, but it remains a delicate subject as most new and inexperienced entrepreneurs tend to get their judgment clouded by sentiment and emotion.
Prepare Plans For Conflict Resolution
Family-owned businesses, such as SimFresh, have been able to grow their citrus packing business for decades now, thanks to their ability to address and resolve conflicts before it worsens. Perhaps one of the problems about starting a business with family is that nobody knows how to push your buttons better than they do. Thus, there is always a higher risk for conflict and tension. A conflict resolution plan can come in handy during such heated situations. If you have the budget for it, call a professional mediator to help bring an unbiased opinion to the current conflict your business is going through.
Work With a Coach
A seasoned business coach or mentor who’s an outsider can help your business move forward towards the right direction. They can also help you overcome the common barriers to scale your business. When vetting your options, go with a coach who specializes in family businesses. These mentors are familiar with the unique underlying dynamics of family businesses. And although it sounds like a cost your business can live without, having a coach or mentor can help you identify and navigate business challenges, put you on track to achieve short-term and long-term goals, and ensure your survival and success.
Decide the Type of Business
Regardless of who you’re starting the business with, deciding what type of business you should file for is the first step to legitimizing your new commercial venture. Study the different forms of businesses and choose one that is most appropriate for your situation. Common types of business include partnership, LLC, and corporation. Depending on what type of agreement or contract you signed with your co-founder/family member, you’ll have to choose a type of business that reflects that agreement. Partnership agreements, for instance, are designed specifically for partnerships while an operating agreement is written for businesses that are classified as LLC.
Remind Yourself That It’s a Business
As long-standing businesses, like SimFresh, know all too well, sentiment and emotions simply have no place in business. Keep your personal affairs separate from your business operations. For starters, keep your business accounts separate from your personal checking or savings accounts. You and your co-founder/family member should both have access to your business’ bank account while all personal finances are kept separate. This will help avoid any unwanted tension sparked by questionable purchases and financial decisions made by either party.
Final Thoughts
Going into business with family is neither impossible nor should it be difficult. While there are many stories of family businesses gone wrong, there are actually positive qualities that family businesses have that they can use to their advantage to compete with businesses that aren’t family-run. As a family business, you have a better understanding of your co-founder’s attitude, personality, strengths, and weaknesses, and that can help you anticipate future challenges and allocate intellectual resources.