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2016-07-07 00:00:00Starting a BusinessEnglish and Don’ts of Setting Up Small Family Business

Dos and Don’ts of Setting Up Small Family Business

2 min read

Setting up a new business can be difficult enough on its own. When it is a family business, the waters get murkier. Family Business companies pose unique challenges and opportunities. While no business is immune to highs and lows, family businesses add another layer of complexity.

In India especially, many organizations are formed on the principles of the traditional joint family system, making things even more tricky. This is not to say that such companies cannot be successful. In fact, some of India’s biggest businesses are family-owned. This bears testimony to the fact that, when done right, they can be successful. Here are some dos and don’ts to keep in mind when setting up a small family business.

Do: Draw up contracts and agreements

It may seem easy to have verbal agreements when first starting a new business with a family member. In fact, contracts and legal agreements may seem unnecessary and even uncomfortable as they are seen as bringing trust into question. However, as the business progresses it is best to avoid conflict and ambiguity with regards to obligations and share of profit by having a written document in place.

Do: Be honest with other employees

It is important to let your employees know that yours is a family business. Be honest about which of your family members you have employed and what their tasks are. By staying honest about the structure of the organization, you will create trust among your employees.

Do: Set clear boundaries

It is common practice for small business owners to wear many hats; family-owned businesses are no different. However, it is necessary to set firm boundaries when it comes to business. Every family member should have well-defined roles. This way, conflicts about each one’s rights and responsibilities can be avoided in the future.

Don’t: Hire a family member without good cause

Setting boundaries in your business will also help you identify whether you really need a family member in your organization. If a relative cannot make a genuine contribution to your business, do not put him on the payroll. Award jobs only on merit.

Don’t: Create separate classes of family and non-family staff members

It is important to treat all family members working for you as staff during office hours. Reward good work and criticize the mistakes of both groups the same way without discrimination. Undue favor displayed towards family members can be demoralizing for other employees, leading to reduced productivity.

Likewise, showering added benefits upon staff members who are relatives also creates unrest within other employees. Their motivation to work hard will be affected, consequently affecting the business output.

Don’t: Bring your business to the dinner table

The closer the bond with the family member you’re in business with, the harder it is to keep personal and professional relations apart. However, it is essential not to bring all business discussions at home. This is especially so in scenarios where the business is co-owned by a spouse. Unless an urgent situation demands it, leave your laptops in the office and focus dinner table conversations on the children, not the next progress update report.

Similarly, if the family member is a cousin or another relative, spending five minutes getting their opinion on a new deal might be acceptable at a family gathering, but spending 30 minutes discussing its pros and cons is an unhealthy way of doing business. Running a family business can offer many advantages, but it is a double-edged decision that should be made with caution.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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