Believe it or not, most businesses in America are family-owned and run. According to Conway Center for Family Business, up to 80% of companies belong to families. Likely, when one pictures a family business, they’re thinking of a smaller scale business: the mom-and-pop stores. However, it’s important to remember that larger companies such as Walmart, Ford, Marriott, and Comcast are all part of that category.
Given that knowledge, it makes sense that families would choose to go into business together. Family businesses share the wealth and can pass on for generations. But only if they succeed. This is where avoiding the most common pitfalls of starting a family business comes into play.
Failure to Set Clear Roles and Responsibilities
Failing to create clear roles and responsibilities is one of the first and easiest mistakes in a family business. Remember, boundaries are essential – especially in a business world, even if that means setting boundaries within your own family.
Setting boundaries applies to everyone working within the business – family or not. An employee with a well-defined position and role is more likely to succeed.
Failing to Keep Finances Separate
Whether your business consists of one person or several people, it’s vital to keep the finances separate. Even when a family is involved, this may feel counterintuitive since family finances may have started the business. Additionally, some family businesses may even run out of the family home.
However, failure to separate personal and business finances can quickly become lethal for a business. No matter how well-thought-out it is or how enthusiastic its employees are. Without this separation, it’s too easy for one mistake to cause financial disaster.
Failing to Remember Business Essentials
A business does not get to skip out on the essentials simply because a family runs it. Yet, it is all too common that family-run companies fail to consider primary forms of accounting.
Employee documentation is vital, even if every single employee is family. It is critical to track documentation across the whole company – both for family and non-family employees. Additionally, do not forget about withholding taxes, providing paychecks, and including essential benefits (health insurance).
Failing to Value Non-Family Employees
When running a family business, it is likely that eventually, there will come a time when they will need to hire outside of the company. There will be times when a specialist is required, or perhaps the business has grown enough to require more hands. Regardless of the reason, it’s essential to avoid letting these employees fall by the wayside.
Favoritism and nepotism are commonly seen – and looked down upon – in the business world. Both can result in negative consequences, such as poor management, mistakes, and missed opportunities. That is why it is essential to strive to treat all employees equally.