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