Would it surprise you to know that family-owned businesses account for the majority of organisations that are currently operating across all of Australia? Thus, if you're considering starting a new commercial enterprise with a spouse, parent, sibling or cousin, you're in good company.
According to the most recent statistics available from the Australian government, family-owned businesses make up an estimated 70% of all the commercial organisations in Australia and employ more than 50% of the nation's workforce. In many ways, family businesses represent the backbone of Australia's vibrant economy.
Clearly, the notion that you shouldn't mix family with business isn't necessarily the case; so many Aussie entrepreneurial successes have proven the naysayers wrong. However, whether you have a business already and want a relative to join you in ownership or you're thinking about creating a company from scratch with them, it's important to go into the business relationship with your eyes wide open so everyone is clear on the expectations and all roles are properly defined.
Here are a few smart tips to keep in mind as you prepare for the grand opening:
1. Go over all of the pros and cons
Every decision you make comes with a price, both in your personal and professional life. Some of these "costs" are worth it; others are too much. Honestly and openly evaluate all the positives and negatives about forming a partnership. Be as fully transparent about all the potential scenarios that may present themselves and how those can affect the business as well as your personal relationship. If there are conflicts such as who has majority stake, or whether ownership will be split down the middle, get these issues squared away so they don't present themselves later on.
2. Decide on business structure
This tip isn't necessarily unique to family businesses, as all organisations have to come to a decision in this regard, but it's important to be very clear about which business structure makes the most sense. From a sole proprietorship to a partnership to something else entirely, the structure can influence every aspect of your business, including how taxes are spent. Depending on who will be doing what, you should sit down with a professional who knows the ins and out of each business structure, so that the one you choose aligns with your goals and the products and service you'll sell or provide.
3. Develop a family plan
Just as there are many milestones, achievements and outcomes in a close-knit family, lots of things can happen over the lifecycle of a family-run business. While no one can determine what or when these events happen, having a business plan in place lays out who does what, how people get paid (e.g. hourly, salary, commission, etc.) and what happens if someone decides to leave the company. Here as well, you may want to consult with tax professional who knows exactly what a family business plan ought to include and can put it all together in writing.
4. Keep business and private matters separate
The best way to avoid the mere possibility of bad feelings or conflict is by keeping business and private matters separate. In other words, if you're eating dinner or enjoying a long weekend, do your best to avoid any discussion about what goes on in the warehouse, shop or office. Even if there's nothing necessarily unique about the subject matter that could lead to an argument, it's better to leave those topics for discussion during the workday. Doing so can also be an effective way to avoid burnout and maintain a healthy work-life balance.
5. Avoid any hint of favouritism
This should go without saying, but it's supremely important to treat everyone that you hire with respect and equality. Perhaps you're considering hiring a son or daughter, niece or nephew. If you're also planning to hire outsiders, those individuals may be inclined to believe you'll treat them differently. It should be very clear at the outset that decisions will be merit-based.
Furthermore, if a relative or family member is in a higher position than an outsider, it should be clear as to what that's the case. For example, if a son is performing a job that an outside employee wants, tenure may help them achieve that desired role, tenure that the family member has. In short, communication is key in this regard, so there are no hurt feelings or incorrect assumptions made. If preconceived biases can't be overcome, it may be wise to hire someone who can make employment-based decisions more objectively.
There are many aspects to launching a family-run business. WMC Accounting can help you with the process so you're in a position to succeed at the outset. Contact us today to learn about how we can help.