Creating a successful business is not easy. It takes time, money, and a lot of hard work. Running a business can be stressful, and when problems arise, business partners can turn on each other. However, when business partners are friends or family, a business disagreement can have a long-term negative impact. Before you get into business with friends and family, make sure everyone is on the same page.
Communication and Documentation
Clear and honest communication is key to establishing expectations for the future of the business. The prospective business partners need to address all aspects of running a new business, from incorporation, to the day-to-day tasks, to long-term plans. Even if you do all agree, it is important to maintain the formalities of a business, with proper agreements, contracts, and documentation.
Roles and Responsibilities
Everyone needs to have defined roles and responsibilities. A decision-making hierarchy may help everyone to understand what positions the business is taking on various issues. Many business partners who are asked to be financial investors feel like they should have just as much say in the day-to-day business operations as the president or CEO. Make sure everyone understands what they are expected to contribute and where their input may be limited.
You and your family are probably thinking of getting into business for the purpose of making money. It is important to consider how everyone will be getting paid. Is everyone going to draw a salary? How are profits shared and when are profits distributed? Will you be willing to forgo a salary if money is tight? Does everyone feel the same?
It is important to maintain perspective on the difference between business and family. If hiring your nephew turns out to be a bad choice, you need to decide whether the business decision is more important than the family connection.
Planning for Success
You need to talk about all the possible eventualities, good and bad. If your business begins to grow quickly, are you more comfortable with steady growth or do you want to invest more money to scale your operations? If another company is interested in buying your business, will you sell out immediately or keep the business in the family?
Preparing for Problems
While you are planning for success, you also need to talk about what might happen if things don't go so smoothly. You and your business partners may have different ideas of what to do if things go bad. Will you try and ride out losses for a couple of years or do you want to close down the business at the first sign of trouble? If you disagree on these questions, you need to determine what will happen when one partner wants to walk away and the other wants to stay.
The Benefits of a Family Business
There are many benefits to getting into business with friends and family. Many family-run businesses are labors of love, and success means a sense of pride for the whole family. A family may also get to spend lots of quality time together that would otherwise be divided by the workday. Investing in a family business also means investing in your own future rather than someone else's dream. However, it is important to make sure you know what you are getting into before starting down that difficult yet rewarding road.
If you have any questions about getting into business with friends or family, contact Butterfield Schechter LLP. We will make sure you are prepared for success in your future business venture. Contact our office today with any questions you have on how we can help you and your business succeed.