Tips for Creating a Successful Family Business
Family businesses range from small “mom and pop” stores to large corporations, but when family is involved it is important to ensure it is a financial success. Although a family business often begins as a side project, it typically develops into the primary source of money for those you love. Thus, it is imperative that your entity has structure and careful planning. Consider the following:
- Get your agreements in writing. Having a Partnership Agreement or Operating Agreement forces you to deal with issues upfront. The members of the entity can hash out important matters such as salary, dividend distributions, what happens if an owner wants out, and other key terms. The spouse of any members should also sign the agreement so that the business is not upended by divorce or death.
- Create a formal business structure. It is essential for any new business to establish itself as a formal legal entity, such as a limited liability company (LLC) or corporation. When your business involves several family members, having a business structure in place can make the distinction between the entity and the individuals more formal and it provides the owners with protection from personal liability.
- Keep personal and business finances separate. When your business is first starting out, it is common for the owners to invest their time and money into the entity. However, you never want your business finances to be indistinguishable from your personal finances. Thus, your business must maintain its own dedicated bank account and accounting records.
- Treat employees equally. As your business grows, you will need to hire non-family members as employees. It is imperative that you treat everyone equally when it comes to their salary, benefits, and opportunities for promotions. If non-family members believe the owners show favoritism to family members, it will lead to tension and unproductive workers.
- Don’t forget “family time.” It is important that running a business doesn’t take over your life. Set certain times of the day (such as dinner time) where you agree that you will not discuss anything related to the business.
Running a family business isn’t for everyone, but it can be an extremely rewarding venture. Be sure to take the administrative formalities seriously in order to protect your entity and your relationship with your loved ones.
Let us help answer your questions and provide you with the advice and guidance you need. Nielsen Law Group has offices in Chandler, Tempe, Gilbert, AZ and Redlands, CA. Our attorneys and professional staff combine their in-depth knowledge of the law with practical and efficient strategies to determine the most effective approach to each client’s unique situation. Contact us today.