Managing a Family Business

Managing a Family Business

January 29, 2015 Off By Jane

Starting a business can be a lucrative opportunity, but it also can be a risky endeavor. When you start your own business, you rely on yourself and your qualities, skill set and knowledge. However, when you go in to business with your family, you can bring in unique perspectives—but there are some drawbacks to working closely with family members.

Managing a family business can be tricky, and according to the Small Business Administration, a family run business still has the same basic regulatory responsibilities as other businesses.

Being in business with family members has challenges such as which family member has seniority and makes important decisions, as well as identifies and manages risks. In addition to managing normal business-related issues such as performance capabilities, dealing with finances, learning and management styles, managing a family business has its own set of circumstances, such as dealing with unresolved personal issues that could potentially spill into the business. You have to watch out for jealousy, lack of respect for other family members, ethical issues and other concerns.

Working Within the Law

According to New Century Financial, one of the nation’s leading factoring providers, it is important that family businesses are properly structured and in compliance with the government laws, including setting up the proper business structure, filing and paying taxes and other regulatory issues.

Whos the Boss?

Managing other family members can be tricky, as is determining which members will be the managers and who the key players are going to be. How do you decide who will operate in a management-level capacity? It’s typically decided based on how much each family member contributes to the business, which has a value associated with it, such as cash, assets or sweat equity, all of which typically determines the equity share.

Determining the shareholders equity share is important to do early during the initial stages of the business. Then it’s easier to build management and equity distribution policies around that structure.

Performance Abilities, Competition, Jealousy and Family Rivalries

Some family members may have more skills than others, which may create competition and rivalry—typically among siblings or between father and son. Obviously those with more education and experience would likely have management-level roles as opposed to those with no prior experience, who would likely function in entry-level positions.

It’s important to recognize when one family member brings more skills to the table than another, which justifies assigning management level roles versus entry-level roles. Having healthy, productive communication about these aspects of the business can help ease possible tensions.

To that end, all aspects of the business must be performed, either by members of the family or by bringing in an outside consultant. Nonetheless the family business must be managed and operated to include administrative and management functions, accounting, marketing and sales functions and operational and productions functions. If these areas can’t be performed among the combined family members, then an outside independent contractor should be considered.

Finances, Taxes, Loans and Related Issues

Managing a family business also involves getting the business financed. Will it be funded with debt or equity financing or a mixture of them both? Who will be the personal guarantor and take the risk for the business?

Additionally, if the business experiences liability issues, who will be responsible for such debt? Most family-run businesses will find that those who have been financially responsible in their private lives will also be financially responsible in the family business.

Managing a family business can be both lucrative and fun. Learn the ropes according to New Century Financial (