A family business can be a great way to combine your personal life with your professional life and you may even have a vision of your son or daughter one day taking over the family business. Starting any business requires planning, but there are some additional considerations when starting a family business. While it can certainly be a great way to bring a family closer, it can also present some challenges.
Here are 5 things to think about if you're ready to start a family business.
The Big Idea
Before you start a business, you have to have an idea. Whether it's a tangible product or a service, you need to figure out what you'll be selling or providing. Then put together a business plan. While not necessarily a requirement to start a business, a business plan can help you organize your thoughts, focus on the big picture, and provide support for your idea to potential investors.
At the least, make sure you know your target market and competitors and look into the costs of starting the business. Since the whole family may be involved, consider divvying up tasks and projects to different family members.
How will you put together the capital for your business? Are you pooling your money with other family members' money to start the business? Will you be taking out loans? Some states offer loan guarantees and support for entrepreneurs. Consult your city's small business division for guidance on funding your project. Also be sure to check with the US Small Business Association (SBA); the SBA is a federal program offering small business resources including loans.
The Leg Work
Once you have your business idea and the necessary financial backing, there is still much to be done. First, you have to decide what kind of business you'll be establishing. Will it be a corporation, a partnership, an LLC—or something else? Check out the LegalZoom Business Formations page for more business entity options and information.
You'll also need to fill out tax forms, apply for a Federal Tax ID number, and register as a business in your area. If your business involves an invention or some other creative content, you may need a patent or copyright. Connect with your state and local small business departments to determine which legal forms you'll need to complete and which licenses/permits you'll have to obtain.
And you can't have a business without a web presence, so set up a website for your business.
If you're not sure where to start, the LegalZoom Business Resource Network can help you find services and resources to get your business up and running.
The Roles and Rules
As a business owner, it's important to determine roles, job descriptions, and compensation levels for your employees. As a family business owner, it's crucial. Determine each family member's role in the business and outline each position's relationship to one another. Family dynamics don't always translate smoothly to business dynamics, so set up clear communication and conflict resolution procedures. This way, all family members are on the same page and problems can be resolved efficiently and without damaging family relationships.
The Big Picture
Even though you may be many years from retiring or moving on from your business, start thinking about your exit strategy right away. Whether you plan to pass your business on to the next generation, sell your company, or leave the business in some other way, keeping the big picture in mind will help you organize procedures and policies accordingly.
It's also a good idea to get a living trust so your business can continue functioning if you die or become incapacitated. Without a living trust, your business and its assets can get tied up in probate for months; a trust lets your appointee step in right away to manage the business in your absence.
A family business can be the perfect way to make money doing what you love with the people you love, but it does require hard work. With adequate planning and your loved ones' support, your family business can become a legacy to share with future generations.