A family-run business is typically one in which more than half the shares are controlled by members of the same family, or one that has been passed between generations.

Starting, leading and working in a family business can bring valuable benefits compared to other businesses - from greater trust between staff to increased flexibility. Without careful management there can also be problems - from poor communication to clashes over pay.

If you start or join a family business you’re likely to benefit from a range of advantages which you often don’t find in other enterprises.

• Common values - you and your family are likely to share the same ethos and beliefs on how things should be done. This will give you an extra sense of purpose and pride - and your business a competitive edge.
• Strong commitment - building a lasting family enterprise means you’re more likely to put in the extra hours and effort needed to make it a growth. Your family is more likely to understand that you need to take a more flexible approach to your working hours.
• Loyalty - strong personal bonds mean you and family members are likely to stick together in hard times and show the determination needed for business growth.
• Stability - knowing you’re building for future generations encourages the long-term thinking needed for growth and growth - though it can also produce a potentially damaging inability to react to change.
• Decreased costs - family members may be more willing to make financial sacrifices for the sake of the business. For example, accepting lower pay than they would get elsewhere to help the business in the longer term, or deferring wages during a cashflow crisis. You may also find you don’t need employers’ liability insurance if you only employ close family members.

Setting up a family business

Setting up a family business can be an exciting challenge. Before you go ahead it’s important to consider how you’ll deal with a number of issues that commonly confront such ventures. Think about how:

• the business’ shares will be allocated between family members and if there will be non-family shareholders
• to ensure business decisions are taken for business reasons, rather than personal ones
• the roles and responsibilities will differ between family shareholders who are active in the business, those who aren’t, and outside shareholders
• to reward family members, whether it will be different to remuneration for non-family members and what problems this could cause
• you will cope when commercial and emotional concerns conflict
• to be open with your family when you are also their boss
• to avoid resentment when deciding who will succeed you
• to ensure that the family’s finances aren’t entirely dependent on the business

Communication and family businesses

Many misunderstandings and potential areas for dispute in family businesses can be avoided if you ensure good communication channels are in place. The risks are that:

• family members assume they know what other family members feel or want
• personal ties inhibit honest opinions being expressed
• the head of the family may automatically assume control of the business even if they don’t have the best business know-how
• one family member ends up dominating the business
• family-member shareholders not active in the business fail to understand the objectives of those who are active, and vice versa
• personal resentments become business resentments, and vice versa
• non-family board or management members feel excluded

To avoid these pitfalls, you should foster an atmosphere in which open discussion is welcomed and concerns can be voiced without blame being cast. There are a number of practical things you can do. You might:

• remove personal issues from business discussions by holding all meetings in a work rather than home environment
• create mechanisms for providing constructive feedback - this can help prevent staff, particularly non-family employees, from feeling demotivated and uninvolved
• arrange occasional away days to discuss the business’ strategy and direction
• appoint an experienced adviser or non-executive director to the board to provide an impartial viewpoint and help prevent emotions from clouding business issues

Managing conflict in family businesses

The potential for conflict in family businesses can be greater than for many other businesses - typically due to a clash between commercial and emotional concerns.

However, such conflict can be seen as a challenge - or even as a positive driver for change. For example, a dispute between family members on the strategic direction of your business may result in a much-needed rethinking of your business plan and a new agreed vision for the business. Such outcomes, though, are only possible if techniques for avoiding, managing and resolving disputes have already been instituted.

Think about how people in your business communicate with each other. Are emotional issues kept separate from business discussions? Are mechanisms in place to allow all employees - not just family members - to contribute their views? Or does one person tend to dominate?

The best way of avoiding conflict is to prevent misunderstandings from happening in the first place. Drawing up a family constitution can help you achieve this. Plan how you’ll deal with particular types of dispute and set this out in the family-business constitution.

Holding a meeting of the business’ management may be appropriate for relatively minor disputes, with decisions made by majority vote.

For more serious matters you may want to get an outside adviser - many family businesses benefit from having a non-executive director or business adviser - to act as a mediator.

Pay and benefits for family members

Remuneration needn’t be a thorny issue. The trick is to have a remuneration strategy which is consistent, fair and open.

Resentment and conflict tend to occur when these three attributes are missing - for example, if family staff members are paid more than non-family employees without good reason. Family members who hold shares but who aren’t active in the business may also question the remuneration of those who are. Develop a remuneration strategy:

• An individual’s pay should be based on their value rather than their personal need. Look at what the market rate is for the job.
• Post-retirement remuneration plans should be agreed before they come into play.
• Family members shouldn’t be lured into the business with inflated salaries. Likewise, they shouldn’t need to endure unreasonably small salaries to prove their loyalty.
• Benefits, bonuses and incentives should be based on set criteria.
• Unreasonably high salaries and phantom jobs shouldn’t be used to transfer tax-deductible wealth to family members.
• Non-family employees doing the same work as family members should receive the same remuneration.

It’s important that your remuneration policy is seen to be fair. Write it down, be open about it and review it regularly.

Draw up a family-business constitution

One way to manage conflict in a family business is to have a family-business constitution. When well drawn-up, such a document can even prevent conflict occurring in the first place. A family-business constitution - sometimes known as a family creed or strategic plan - is partly a statement of general principles. It outlines your business’ core values and vision, and your family’s commitment to them.

Importantly, it is also a practical guide for running the business and a framework you can use to deal with business issues that have the potential to cause disputes. The process of drawing up a family constitution should be collaborative, involving everybody with a stake in the business. The document should be regularly reviewed. A typical family-business constitution might include the following sections:

• the business’ strategy, objectives and ethos
• leadership
• management structure
• entry principles for family members
• succession and exit policies
• rights, responsibilities and obligations of family appointments
• rights, responsibilities and obligations of family members inactive in the business
• appointment and rights of non-family board members, management and employees
• training, remuneration and appraisal of employees - both family and non-family
• involvement of non-executive directors and other outsiders
• communication channels
• dispute-resolution procedures

Tags: Starting a Business

Many young people run businesses. With the right guidance and support you can follow in their footsteps.

This guide looks at the first steps of setting up a business, the best business structure to suit you and the rules and regulations you need to be aware of. It also has information about organisations providing support and finance to people under the age of 30.

Before launching a business, it’s worth thinking through your ideas and considering whether you have the typical characteristics of an businessman. These are often said to include:

• persistence
• enthusiasm
• creativity
• single-mindedness
• ambition
• commitment
• self-belief

This list is not exhaustive, nor is it intended to be a blueprint for becoming a growthful businessman. Ultimately, there are no hard and fast rules. Many people start businesses based on their hobbies or particular know-how. Already knowing your products and understanding your customers can be a big advantage.

Consider your know-how, interests and hobbies to see if any have the potential to be the basis of a profitable business. It is also important to think about your goals in the short, medium and long term.

The beginning

Starting up a business usually begins with a new business idea.

Once you’re confident about your idea, you will need to choose a legal structure for your business to start trading. The structure you choose will have an impact on the number of people that can be involved, the profits you receive, your financial liability, the records you’re required to keep and the tax and National Insurance you pay.

Whichever structure you choose, you need to:

• Check whether you need a licence for your business.
• Choose a name for your business.
• Check which business rates you need to pay.

When setting up a business, you will also need to:

• Draw up a business plan.
• Think about how to finance your business.
• Understand your customers and markets.
• Find out what regulatory issues apply to your business.

It is a good idea to seek professional advice to help deal with some of these issues. Accountants, insurance brokers, lawyers and bankers can advise and help you overcome any obstacles.

Start thinking

Young people may encounter obstacles when setting up a business because of their age.

Finance: Getting funding for your business may be the biggest hurdle to overcome. Without a track record and with few assets to use as security for a loan, it can be difficult to raise money. There are a number of schemes that can help if you find it difficult to raise finance. These include:

• The Prince’s Trust
• Shell LiveWIRE
• National Federation of Enterprise Agencies (NFEA)

Experience: A lack of business experience can seem an obstacle to being taken seriously and getting your ideas off the ground. Talking to experienced advisors can be helpful as they may have faced similar problems and can offer guidance on how to overcome them.

Premises: You may find that running a business from home suits you, or you may decide you need business premises. This comes with responsibilities in terms of money and time and different options suit different businesses. If you register with Shell LiveWIRE, you are allocated a local business co-ordinator who can advise on business issues, including getting premises. In England, your local enterprise agency can sometimes offer premises at cheap rates. Find your Local Enterprise Agency on the NFEA website. Businesses in Scotland can also find a local enterprise company on the Scottish Enterprise website.

Plan your progress

A business plan is a document that sets out the vision for your business. In it you can define the purpose of the business and set goals for it. It then becomes a helpful framework for developing your business and for monitoring progress. Your business plan will also be the basis for marketing your company, either to raise money or attract business partners. Be honest, but also try to put yourself and your business idea in the best possible light. Your business plan should cover the following areas:

• Profile: Describe what the business does and what know-how and relevant work experience you have.
• Market research: Explain who will buy your commodity or service and identify any competitors. This will show potential investors or partners that you have researched and identified a gap in the market. You should also include any commodity testing and development that you have carried out.
• Marketing strategy: Describe how you will market and sell your commodity. Explain how you will price your commodity and identify methods of promoting your commodity or service.
• Financial information: Provide financial forecasts. These need to show that your business is viable and can generate enough cash to cover costs and become profitable. Include details about how you plan to fund your business.

Finance

As a young businessman, you may not have a lot of your own money to invest in your business. The main finance options available to you include:

• loans
• overdrafts
• shares
• family loans
• grants
• joint ventures

However, if you have no credit history or track record, and little or no assets to offer as security, banks may be unwilling to give you a loan or overdraft. This means you may have to find other ways to fund your business.

If you struggle to raise money, the Prince’s Trust may be able to help. The Trust offers:

• a low-interest loan of up to £4,000 for a sole trader or up to £5,000 for a partnership
• a grant of up to £1,500 in special circumstances
• a test marketing grant of up to £250
• a wide range of commodities and services, including a free legal helpline

You can register your interest in securing finance on the Prince’s Trust website. You can also look into the businessman scholarships offered by the National Federation of Enterprise Agencies (NFEA). This is the membership body of the local enterprise agencies in England and offers start-up funding of up to £3,500. You can find out about businessman scholarships on the NFEA website. The government provides financial support for businesses in a number of ways.

Most businesses are not expected to be profitable from day one, but they are expected to have a plan outlining when they are likely to become profitable. This plan should include a break-even analysis. This is an estimate of when the price of your commodity or service will equal the cost required to produce it, and you start making a profit.

Cashflow is the balance of all the money flowing into and out of your business. While a business can survive for a short time without sales or profits, without cash it will die.

Businesses should also have proper financial controls. Keeping accurate records helps you fulfil your legal requirements. It will also help you monitor your financial position and keep a tight control on costs.

Tags: Starting a Business

It is crucial to have a realistic, working business plan when you’re setting up a business. It has many functions, from securing external funding to measuring growth within your business.

Many people see the business plan as a document used to secure external funding. This is essential because potential investors, including banks, may invest in your idea, work with you or lend you money as a result of the strength of your plan. There are many other benefits to creating and managing a realistic business plan - even if you just use it in-house. It can:

• help you spot possible pitfalls before they happen
• form the financial side of your business efficiently
• focus any of your development efforts
• work as a measure of your growth

The following people or institutions may request to see your business plan at some stage:

• external investors - whether this is a friend, a venture capitalist firm or a business angel
• banks
• grant providers
• anyone interested in buying your business
• potential partners

You should also keep in mind that a business plan is a living document that will need updating and changing as your business develops. Regardless of whether you intend to use your plan internally, or as a document for external people, it should still be capable of taking an objective and honest look at your business. Failing to do this could suggest that you and others have unrealistic expectations of what can be achieved and when.

Your business plan is a statement of intent. It should offer you details of how you are going to develop your business, when and who’s going to play a part and how you will manage the money. Clarity on these issues is on the whole important if you’re looking for finance or investment. The process of building your plan will also focus your mind on how your new business will need to operate to give it the best chance of growth.

Your plan should include:

• An executive summary - this is a general idea of the business you want to set up. It’s crucial. Many lenders and investors make judgments about your enterprise based on this section of the plan alone.
• A short description of the business opportunity - who you are and what you plan to sell or offer, why and to whom.
• Your marketing and sales strategy - why you believe people will buy what you want to sell and how you plan to sell it to them.
• Your management team and personnel - your credentials and the people you plan to recruit who will work with or for you.
• Your operations - your premises, production facilities, your management information systems and IT.
• Financial forecasts - this section translates everything you have said in the previous sections into numbers.

The executive summary:

The executive summary is often the most key part of your business plan. Positioned at the front of the document, it is the first part to be read. Nevertheless, as a summary it makes sense to write it last. It may be the only part that will be read. Faced with a large pile of funding requests, venture capitalists and banks have been known to separate business plans into “worth considering” and “discard” piles based on this section alone.

The executive summary is a synopsis of the key points of your full plan. It should include highlights from each section of the rest of the document - from the key features of the business opportunity through to the elements of the financial forecasts. Its idea is to explain the basics of your business in a way that both informs and interests the reader. If, after reading the executive summary, an investor or manager understands what the business is about and is keen to know more, it has done its job.

It should be brief - no longer than two pages at most - and interesting. It’s advisable to write this section of your plan after you’ve completed the rest:

• A brief description of the business and its supplies. It’s a synopsis of the entire plan.
• An extended table of contents. This makes for very dull reading. You should ensure it shows the highlights of the plan, rather than restating the details the plan contains.
• Hype. While the executive summary should excite the reader enough to read the entire plan, an experienced businessperson will distinguish hype and this will undermine the plan’s credibility.

A short description of the business opportunity:

This part of the plan sets out your vision for your new business and includes who you are, what you do, what you have to offer and the market you want to address.

Start with a summary of your business:

• when you started or intend to start trading and the progress you have made to date
• the type of business and the sector it is in
• any related history - for example, if you acquired the business, who owned it originally and what they achieved with it
• the current legal structure
• your vision for the future

Then describe your commodities or services as simply as possible, defining:

• what makes it different
• what benefits it offers
• why customers would buy it
• how you plan to develop your products or services
• whether you hold any patents, trademarks or design rights
• the key features of your industry or sector

Bear in mind that the person reading the plan may not fully understand your business and its products, services or processes as well as you do, so try to avoid jargon. It’s a better idea to get someone who isn’t involved in the business - a friend or family member perhaps - to read this section of your plan and make sure they can fully understand it.

Your marketing and sales strategy:

In this section you should identify your market, your position in it and highlight who your competitors are. In order to do this you should refer to any market research you have previously carried out. You need to show that you’re fully aware of the marketplace you’re planning to operate in and that you know any important trends and drivers.

You should also be able to explain that your business will be able to attract customers in a growing market despite the competition. Key areas to cover include:

• your market - its size, historical data about its development and key current issues
• your target customer base - who they are and how you know they will be interested in your products or services
• your competitors - who they are, how they work and the share of the market they hold
• the future - anticipated changes in the market and how you expect your business and your competitors to react to them

You also require knowing how your competitors’ advantages and disadvantages relate to your own. Portray any competitive analysis you have carried out and include some what-if scenarios that show how your business would deal with customers’ changing needs or any other market changes. 

Marketing and sales:

This section should illustrate the specific activities you intend to use to promote and sell your products and services. It’s often the weak link in business plans so it’s worth spending time on it to make sure it’s both realistic and achievable.

A strong sales and marketing section means you have a clear idea of how you will get your products and services to market.

Your plan will need to provide answers to these questions:

• How do you plan to position your product or service in the market place?
• Who are your customers? Include details of customers who have shown an interest in your product or service and explain how you plan to go about attracting new customers.
• What is your pricing policy? How much will you charge for different customer segments, quantities, etc?
• How will you promote your product or service? Identify your sales methods, eg direct marketing, advertising, PR, email, e-sales.
• How will you reach your customers? What channels will you use? Which partners will be needed in your distribution channels?
• How will you do your selling? Do you have a sales plan? For example, will you sell by phone, via a website, face-to-face or through retail outlets?

Your management team and personnel:

Your business plan required to set out the structure and key know-how of both your management team and your staff. It should categorize the strengths in your team and your plans to deal with any obvious weaknesses.

The management team: If you’re looking for external funding, your management team can be a decisive factor. Give details of who is involved, their role and how it fits into the organisation. Include a paragraph on each of the individuals, outlining their background, relevant experience and qualifications. Include any advisors you might have such as accountants or lawyers. If you’re aiming to satisfy your bank manager or other investors, you need to show that your management team has the right balance of know-how, drive and experience to enable your business to succeed. Key know-how include sales, marketing and financial management as well as production, operational and market experience. Your investors will also want to be convinced that you and your team are fully committed. For that reason it’s a good idea to set out how much time and money each person will contribute to the business and the salaries and benefits you plan to draw.

Your people: Give details of your workforce in terms of total numbers and by department. Spell out what work you plan to do internally and if you plan to outsource any work. Other helpful figures might be sales or profit per employee, average salaries, employee retention rates and productivity. Your plan should also outline any recruitment or training plans, including timescales and costs. It’s vital to be realistic about the commitment and motivation of your people and spell out any plans to improve or maintain staff morale.

Your operations:

Your business plan also required you to outline your operational capabilities and any planned improvements. There are certain areas you should focus on.

Location:

• Do you have any business property?
• What are your long-term commitments to the property?
• Do you own or rent it?
• What are the advantages and disadvantages of your existing location?

Production facilities:

• Do you need your own production facilities or would it be cheaper to outsource any manufacturing processes?
• If you do have your own facilities, how modern are they?
• What is the capacity compared with existing and forecasted demand?
• Will any investment be needed?

Management-information systems:

• Have you got established procedures for stock control, management accounts and quality control?
• Can they cope with any proposed expansion?

Information technology (IT):

• IT is a key factor in most businesses, so include your strengths and weaknesses in this area.
• Outline the reliability and the planned development of your systems.

Financial forecasts:

As part of your plan you will need to provide a set of financial projections which translate what you’ve said about your business into numbers. You will need to look carefully at:

• how much capital you need if you are seeking external funding
• the security you can provide lenders
• how you plan to repay any borrowings
• sources of revenue and income

You may also want to take account of your personal finances as part of the plan at this stage.

Your forecasts should run for the next three (or even five) years and their level of sophistication should reflect the sophistication of your business. Nonetheless, the first 12 months’ forecasts should have the most detail associated with them.

Your forecasts should include:

• Cashflow statements - your cash balance and monthly cashflow patterns for at least the first 12 to 18 months. The aim is to explain that your business will have enough working capital to survive so make sure you have considered the key factors such as the timing of sales and salaries.
• Profit and loss forecast - a statement of the trading position of the business: the level of profit you expect to make, given your projected sales and the costs of providing goods and services and your overheads. 
• Sales forecast - the amount of money you expect to raise from sales.

Presenting your business plan:

To make sure your business plan has maximum impact, there are a number of points to examine.

Keep the plan short - it’s more likely to be read if it’s a manageable length. Think about the presentation and keep it professional - even if you only aim to use the plan in-house. Remember, a well presented plan will reinforce the positive impression you want to create of your business. Make sure your plan is realistic. Once you’ve prepared your plan, use it. If you update it regularly, it will help you keep track of your business’ development.

• Include a cover or binding and a contents page with page and section numbering.
• Start with the executive summary.
• Ensure it’s legible - make sure the type is ten point or above.
• You may want to email it, so ensure you use email-friendly formatting.
• Even if it’s for internal use only, write the plan as if it’s intended for an external audience.
• Edit the plan carefully - get at least two people to read it and check that it makes sense.
• Show the plan to expert advisers - such as your accountant - and ask for feedback. Redraft sections they say are difficult to understand.
• Avoid jargon and put detailed information - such as market research data or balance sheets - in an appendix at the back.

Tags: business plan