4 Musts Before Starting a Family Business

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3.   Defined Organizational Structure and Policies

Defining an organizational structure and setting company policy are always important but become more essential when employing family members.

When properly implemented, the organizational structure can stop future litigation from outside third-parties as well as protect the founder from too many family related issues such as complaints by uncles regarding the action of nieces employed at family member’s business, for example.

A clear and defined organizational structure reduces the likelihood a lower level employee will over step the structure in place.  In order to ensure a family business has an effective structure, the family business should include a chain of command to know who to communicate to and when it is appropriate as well as enforcement of the structure through penalties when violated.

Such penalties may have to involve the termination of a family employee, if necessary.

By having the structure in place, it allows the business owner – who may be the family’s figurehead – to stay focused on current business issues.

Moreover, the clear organizational structure stops third-parties from claiming a lower level family member had more authority than actually given through the establishment of structure itself.

4) Succession Planning

Leaving the business one creates might be the last thing on a business owner’s mind at the conception of the business; but, it is an important part of the business’ life that needs planning.

If a new business founder does not determine a complete and detailed succession plan, his/her legacy may forever be shrouded in uncertainty amongst his family members. This shroud occurs due to the failure in defining a succession plan as far as who will take-over what aspects of the business or who will the business itself.

If left without planning, it could lead to close family relationships deteriorating, or, even worse, a family member being completely removed from the business either by the family member or the founder without realizing.

Conclusion

Doing business with family is always going have its own unique challenges but can be beneficial so long as one considers the important points outlined above.

Hopefully, this article will help you in the future when starting your family business.  Additionally, you may wish to retain a lawyer at the onset of planning a business as it will be most helpful when structuring your business for financing, operating, or with respect to transferring the business to a family member later in the business’ life.

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