It sounds wonderful, doesn’t it – working with your spouse, your bestie, your mum, dad or bro? It’s a fact that many friends and family partnerships work incredibly well, and family businesses have become the backbone of the UK economy, accounting for more than 88 per cent of private companies in Britain.
Family business success stories include some instantly recognisable, massive brands such as JCB, Specsavers, Clarks and Dyson – but it’s fair to say that friends and family businesses come with their own set of challenges, quite distinct from any other. And whilst the rewards of working with those closest to you can be wonderful, the risks can be far greater. Consider what you stand to lose if things don’t run smoothly.
I’ve seen not only companies, but lifelong friendships and family relationships crash and burn because the dream of working together turned into a nightmare in reality. Which is why I recommend some simple safeguards to any of my clients going down the route of starting a business with friends or family members.
Here are my suggestions on how to give a friends or family business the best chance of success.
1 – Are you up to the job?
You may be partners or pals, but when it comes to running a business it’s largely your professional skills that will determine your success. Working out whether you can get a venture off the ground must start with a head-over-heart decision as to whether everyone is capable of fulfilling the requirements of their proposed role. Take some time to draft a skills map, setting out what each of you is bringing to the business in terms of experience, knowledge and abilities. Be completely honest and identify any gaps that could impact your business. Discuss how you’re going to fill these, either with training, outsourcing or bringing in further partners or employees. This important step needs to give you the confidence to progress the idea to the next level. If it raises any doubts, these need to be considered carefully.
2 – Define everything in black and white from day one
Even if you want to keep the working environment and relationship relaxed, certain parameters do need to be defined for all concerned. What is the company structure and where do you ‘fit’ within it? Where will you work? What are the expected working hours, holiday entitlement, wage and payment terms?
Failing to outline the framework for working together from the outset is a recipe for disaster. Trying to impose rules at a later date, once behaviours and routines are embedded, very rarely works.
3 – Be REALLY clear on money matters!
As soon as money is involved, the dynamics of your relationship will change. Are you prepared for that? Disagreements over the finances of a friends or family business are one of the major causes of their collapse.
If you’re investing money in the business, make sure you understand the risks involved. Will you have personal financial liabilities should the business fail? Make sure it’s really clear when and how much you will each be paid and make this transparent from the outset, especially if one is being paid more than another. Getting an accountant involved at an early stage can help you with your business structure and business plan, and help you be certain it’s a sound and profitable investment.
4 – Outsource your bookkeeping, accounts and payroll
Bringing in a third party professional to handle the bookkeeping, accounts and payroll ongoing is a great investment in any business, but even more-so in a friends or family business. Knowing that money can be a contentious issue, it’s good to place a buffer between yourselves and the financial management. This will help ensure everything is above board and there is no reason for argument over cash handling and management.
5 – Be strict about separating work and home
A friends and family business can become all-consuming if you’re not careful. You will be tempted to talk shop outside the confines of the office – and work hours often blur into home-time. Very soon, you could find work dominates every aspect of your life, which isn’t healthy. You need down-time, and you need to make sure you maintain the friend or family relationship you had before the business venture began.
If you’re finding it a struggle to keep work confined to work and out of the out-of-hours conversation, set up a fines box to add an element of fun to keeping work separate. Anyone who mentions work during friends or family time must pay a fine!
6 – Nip conflict in the bud
There will be times when you disagree over something in the business, or an issue might be niggling at you about how the business relationship (or even your friend or family member) is working. If you don’t want this to seep into your post-work rapport or jeopardise the future of your business, you can’t let feelings fester. It’s better to try and work things out between you as early as possible if you can.
As with the finances, it can be advantageous to have an unbiased third party who can help keep things professional rather than letting things get personal. I often suggest friends or family businesses have a business coach or mentor on-hand who can help mediate, acting as an impartial outsider in business discussions.
7 – Consider the impact of workforce expansion
If your business grows to encompass additional employees beyond the initial friend or family partnership, it’s important to remain fair and professional in the way you operate and treat all parties within the business. Displaying preferential treatment can cause resentment amongst a team and you have to show that policies and procedures apply to everyone.
The fact is, friends and family businesses can be amazing, but you shouldn’t enter into one with rose tinted glasses. You need to have some open, honest and potentially difficult conversations to make sure you are doing the right thing.
At Get Smart Accountants we work with our clients to drive growth and help them achieve their dreams.
If you’d like some advice or support to get your business moving in the right direction, then we’d love to hear from you.
Call Emma or Paul on 01902 212937