Family businesses are the backbone of the American economy. This is evident in the statistics that show that 5.5 million American families own a business. Additionally, there are several advantages to setting up a family business, such as generational ingenuity, decreased costs and expenditure, and stability. Therefore, if you have a family business idea, you should consider implementing it today! However, like other families, you may be unsure how to do so. If that’s you, then you are in the right place. Here is a guide on four crucial factors to consider when setting up a family business.
- Communicate the business idea with your family
Before you go ahead to implement your business idea, it is vital to discuss it with your family. You must ensure that each person is in the loop and give ample time for them to give their feedback, such as considerations, suggestions, and additions to the proposed idea. To ensure that you communicate the idea with your business effectively, create a business plan to better illustrate the business’s aim, vision, goals, and other important elements. In discussing the business idea, allow your family to point out the various skill sets they can offer to the business. This helps you plan better and ensures that the business runs smoothly once established, as your family’s morale is boosted as they would be doing what they are good at.
- Consider the source of capital
The same rules of traditional businesses still apply when setting up a family business. A major factor you cannot compromise on is your startup capital. In business, “capital” refers to the funds the business needs to carry out its operations and expand. When setting up your business, you must consider your source of capital. Fortunately, there are several options to choose from. For instance, you can request a loan from a financial institution or from trusted and reliable friends and family. You should also consider consulting experts such as those at The Vant Group M&A Advisors on the best way to attract the rest of the investors to your business.
- Select a business structure
Another vital factor you should consider is the structure of the business. There are four main business structures to choose from: sole proprietorship, partnership, limited liability company (LLC), and corporation. It is vital to research and better understand what each structure means for the operations of the family business. For example, if you choose to run the business under a sole proprietorship structure, this would mean only one person can run the business. However, to select the right structure for your business, you must consider what each structure entails and how well it would suit the structure.
- Plan for the future
As mentioned early, family businesses are a great idea as they ensure generational ingenuity. It also acts as a form of family investment, as your beneficiaries, such as your children or grandchildren, can reap its advantages. Although planning the future of the business, such as entitlement to various percentages, distribution of profits, and other issues, can be uncomfortable, it is a vital conversation you must have with your family. Be sure everyone is content before you go ahead with the plans.
