Running a family business can be a rewarding experience. It allows several relatives or family members to pool their financial resources towards a central business goal. While family businesses can be good for entrepreneurs in certain fields, there are some disadvantages. The following guide explains some benefits and disadvantages when starting a family business.
It can be challenging to raise funds to start a business. A new business requires capital and human resources. Capital can come from existing funds or a credit line. Human resources can come from friends, families, or strangers.
Families share a bond of trust that can be damaged by a business relationship. Family bonds can be a great way to start a business, but business interests may damage relationships over time. Different people may hold different interests in a business. In addition, some family members may choose to compensate themselves in different ways. This can create a sense of anger, resentment, and hatred among family members. In addition, family relationships may lead to poor business decisions in the future. A relative may believe that a business venture is a good idea, while in reality it is a poor idea. The family member’s clout as a relative may lead to a poor business venture. This can result in bankruptcy, loss of capital, and damaged relationships.
According to the Small Business Administration, more than 70 percent of all family businesses do not survive though the second generation, and 8 percent do not make it to a third.
It’s important to approach a family business from an objective point of view. While it’s always good to maintain friendly relationships with family members, business decisions may require ideas to be rejected. It can be challenging to turn down a family member’s business idea, but it’s essential to maintain the integrity of a business.
An excellent way to maintain a family business is through a non-relative. It’s a good idea to hire an accountant or attorney to assist in business decisions. He or she can help the family decide what is a best for a business. An outsider can provide several advantages for a family business. An outsider can be brutally honest about what is good and bad for a business, while a family member may not be willing to provide that information. In addition, an outsider can provide a point of view that can be beneficial for future business decisions.
It’s important to hire a non-relative who has solid experience in one’s field. His or her resume should reflect a successful past in related business ventures.
A larger family business should provide shares that can be sold to family members and outsiders. While a small business does not need to go public, shares in a business can be a great way to ensure that everyone has an interest in the performance of a company. An outsider who receives shares in a family business will work to make sure that the business performs to the best of its ability. In addition, involvement of a non-relative will help ensure financial and business integrity into the future.