FamilyPreneurship: 10 Tips for Working with Family
When you throw family into the mix it becomes even more complicated to effectively run a business. There’s an emotion level not found in other business partnerships and employee relationships. Communications take a different path when you’re working with a family member, creating a lack of honesty and eventually a build up of frustration.
More than 70 percent of all U.S. businesses are family-owned, and their proprietors will often say that success means being one part entrepreneur, one part family psychologist. To gain deeper insight into what it takes to successfully manage a family-owned business, MassMutual conducted a study, FamilyPreneurship: What Every Entrepreneur Should Know before Starting a Business with a Family Member, that involved speaking to more than 500 family business owners around the country. From these conversations, MassMutual identified 10 lessons that family business owners need to know:
1) It all starts with the intangibles. Passion for the business and trust between family members and advisors were cited as the two most important critical success factors by current family business owners. You have to have 100 percent confidence that your partners are going to be with you through thick and thin, and that your advisors are knowledgeable and steadfast.
2) Go in with eyes wide open. There are many advantages to running a family business, including control and work-life balance. But those advantages come at a price, such as more stress, fewer vacations and potential disagreements with family members, according to survey respondents. Be prepared to take the great with the not-so-great.
3) Communication is key. Respondents said that communication is one of the top elements to success because it helps maintain good relationships with family both in and out of work and leads to effective decision-making.
4) Decide who’s the boss. Clear definition of roles and responsibilities is critical, enabling the business to run efficiently and ensuring that it avoids paralysis due to confusion over leadership. Each person has to do what they’re better at.
5) Decide how to decide. Respondents said a decision-making and disagreement-resolution process is critical to avoid arguments that can stymie the business and hurt morale. Some businesses adopt a majority-rule process. Others assign decision-making responsibility for particular areas to each partner. And others advocate for a negotiation process.
6) Strike a balance. It’s easy to get consumed by work demands and to let them invade family life. Most family business owners discuss work at home (44%) and vice versa (28%), but most say they don’t consider it to be a big problem, according to the survey.
7) Divorce-proof the business. Regardless of whether the business is owned by a husband and wife team or not – a partner’s divorce from a spouse uninvolved in the business can still have disastrous consequences. Of the 15 percent of respondents whose businesses had experienced divorce, 44 percent had a negative experience. More than a third of respondents have never given the possibility of divorce and its impact on the business any thought.
8) Who’s next? Most family business owners have inadequate or inflexible succession plans. While most (56 percent) are worried about how a death would affect their business, and nearly half are worried about how a disability would affect their business, many either have no succession plan in place (41 percent) or have a plan in place that they consider to be inflexible (47 percent.)
9) This way to the exits. Most respondents (65 percent) say they don’t think a legally-documented buy-sell agreement is necessary, even though such agreements can be an effective way for owners to smoothly transition the business to the next generation while also preserving their own retirements.
10) Don’t lose it all to Uncle Sam. More than a third of respondents (38 percent) have no plan in place to deal with estate taxes, which can hurt a family’s ability to continue the business and can also erode inheritances.