Useful tips and strategies to help you now more than ever
You and your family have been thinking about starting your own business. You’ve gotten encouragement from your friends and loved ones – and now, you think you’re ready to get started.
This time can be both inspiring and anxiety-inducing. We commend you and are excited about your bold action. But there’s an essential truth you need to know: being a great carpenter, chef, or consultant doesn’t mean you’ll be great running your own family business – at least not right away.
Success requires excellent communication and a set of core business skills. And during this time of uncertainty, now more than ever, these are necessary to get your business started.
However, with the help of this guide, you’ll be on the right track. Here are 10 steps to follow as you set up to start your family business:
1. Start having important discussions now
Before you begin, there are some essential questions you want to discuss with your partner and family. Here are 5 to consider:
Question #1: Are we ready to be our own boss? Don’t be so quick to say yes. Many people don’t realize how much they rely on a 9-to-5 schedule, a manager to direct them, and a sales team to bring in clients.
Do we have the self-discipline? Can we make our own schedule each day and week? While you have a lot of freedom here, it’s not always as easy as it sounds. Even people with a solid business plan and secure funding sometimes discover they don’t have the personality to run their own business.
Take some time to discuss these potential challenges and brainstorm ideas on how you can avoid them.
Question #2: Are we prepared for some fluctuations in income? It may be several weeks or over a month before you send out invoices and get paid. Also, while working for an employer can be a drag, one benefit is that you usually know how much you’ll make in a month. This may not be the case immediately when you start as a family-owned business.
Prepare for a gap in income and learn how to budget ahead. Anticipate expenses for equipment and supplies as much as possible.
Questions #3: How can we improve our money management skills? If you’re currently working for an employer, financial planning must be thought through before you quit. Otherwise, you’re setting yourself up for stress and a potentially big disappointment.
Also, be careful not to go overboard with start-up purchases. You can always purchase additional items as you establish yourself.
Question #4: What are your boundaries, and how will you communicate? If you’re both working and living together, it can be easy to talk about your new business 24/7. Carve out time in the evenings or on your days off where work talk is off-limits. Also, consider weekly meetings to discuss company progress, and to resolve any disputes.
Question #5: What will be your specific business roles? This is essential. Decide who is responsible for what on a daily and weekly basis. Remember, even though you’re working with family, you’re still running a business. Roles and responsibilities need to be clearly defined. Of course, you can always make changes and adapt these roles as you go.
2. It’s time to do some research
Next, you’ll want to take time to learn more about your community and find opportunities for your business to have an edge. This research will help you avoid risks and frustrations BEFORE you invest your time and money into your passion.
Start collecting information about your community or where you plan to do business. Demographics (age, wealth, interests, family) can help you better understand opportunities to get new customers.
- Keep these crucial questions in mind:
- How big is the demand for your service?
- Where do your customers live, and where will your business operate?
- How many similar companies already exist in your area?
- What do customers typically pay for similar services?
- What are the potential ways you can make your business stand out?
There are many resources to help you answer these questions. To start, the US Small Business Administration has a great list.
For even more specific information to your community, talking to potential customers also can give you eye-opening insights. If possible, ask them about their reactions to your logo or how you could improve the buying experience in your industry.
You can create a list of questions and talk to people in your community. If you’re on social media, you can also post your questionnaire and take note of the answers.
Look for places where you can have an advantage
Take the time to research your competitors. This is essential to finding your competitive edge and creating a sustainable business. Look at all similar companies in your area to get ideas for your business and see how you can stand out.
3. Begin writing your business plan
At this point, you’ve discussed the business with your family. You have done some research about your community and the competition. Now it’s time to start putting everything into writing. You won’t be able to finish this plan until you complete all the steps in this guide; however, it’s best to start early and add as you go.
A good business plan provides clear steps for how to structure, run, and grow your family business. It can also help you get funding or add partners since it’s also intended to persuade people why working for your business is the right choice. Here’s some information to include:
- Executive summary: Briefly explain what your company is and why it will be successful. Create a mission statement, summarize your service, and give information about your business’s leadership, employees, and location.
- Company description: Next, explain precisely what problems your business solves. List the consumers you plan to serve and discuss the competitive advantages you will have.
- Market analysis: Here’s where you write down what you learned in step 2. You want to make sure you have a clear understanding of your industry, know what successful competitors are doing, and how you can do better.
- Organization and management: Explain your company structure in detail. You’ll need to include the legal structure of your business (step 5). You’ll also want to show how each person’s experience will contribute to the success of your company.
- Service or product line: Describe the services you offer. Explain specifically how they benefit your customers.
- Marketing and sales: Of course, when you’re starting out, your strategy will evolve over time. Your goal here is to describe how you’ll attract customers and be competitive.
- Financial projections: Talk about how your business will remain stable and be a commercial success. This section is especially useful if you plan to take out a business loan down the road.
Click here for examples of business plans.
4. Find other small business owners to mentor you
You might already know several small family business owners in your community. If not, it’s time to ask around. Make a post on your social media accounts or talk to your friends and family. And no, this isn’t weird. People love to talk about their expertise, and many will be glad to help you if you ask.
Single out one or two contacts who successfully run family businesses. Ask if you can take them out for coffee. If they’re busy, even a 10-minute phone call or answers to your questions via email can be valuable. Pick their brain about the unexpected challenges they faced when they started.
Also, talk about their overall experiences. What would they do differently in hindsight? What opportunities did they jump on – or miss? These discussions can save you years of learning and thousands of dollars in mistakes. These can be some of the most meaningful business insights you’ll ever receive.
Close the loop and build relationships with your mentors. Follow up every few months with the people you talk to. If you take a mentor’s advice, and it positively impacts your business, share that information with them. They’ll appreciate your feedback, and you’ll be on the path to building a robust network.
Remember: relationships are give and take – so make sure you give back as well. Even if you’re just thanking a mentor for their help.
5. Choose your business structure
It’s time to choose a structure so that you can eventually register your business. This step is especially important because your business structure determines your taxes and liability. Be sure to reach out to your mentors, an accountant, or business attorney as you work through this step.
Here is an overview of the most common business types:
- Sole Proprietorship: This is the most common structure for new businesses. It lets you start out simply and gives you the potential to grow. However, it’s not always the best for families because it involves ownership and operation by a single individual. Still, sole proprietors can hire employees or contractors, so it may work for some families, as long as everyone understands that one person is mainly in charge.
- Partnerships: This structure is similar to sole proprietorships, but includes additional partners. There are two types: limited partnerships (LP) and limited liability partnerships (LLP). These partnerships involve an equal division of responsibilities and rights
- Limited Liability Company: This is a typical structure for family businesses. LLCs keep business and family separate. It protects your family’s assets and liabilities – such as your savings, home, and vehicle – if your company faces bankruptcy or a lawsuit.
- Corporations: There are several types of corporations to choose from. These are usually the best choice for medium- to large-risk ventures that may someday go public or be sold outright. Nonprofits are also classified in this category.
Don’t just choose this at random. Take the time to talk to trusted mentors and professionals to make the best choice based on your family business and financial situation.
6. Register your business with state and federal agencies
After determining your business structure, it’s time to register your new business name and tax information with state and federal agencies. Your state and the business type determine registration. In some cases, like for sole proprietorships, you may not need to register at all.
Each state has different business registration criteria
The Small Business Administration has designed a webpage to help. To find out your state’s requirements, follow this link and scroll down to the window that says, “Look up your state.”
Register your business name
Chances are you’ll need to register your family business name. Be sure to choose one that reflects your identity and gives potential clients a clear understanding of what you do.
Registering your business’s name protects it from being used by others. There are four ways to register – and some may be legally required depending on your business type and location:
- Entity Name – Protects your business’s unique name at the state level
- Trademark – Protects your business’s unique name at the federal level
- Doing Business As (DBA) – Doesn’t protect, but might be required
- Domain Name – Protects your business’s website address
Again, check your state’s specific requirements about registering your business name for individuals, like you, who are solely independent contractors.
Create an Employer Identification Number
Most small businesses need to register for both state and federal tax ID numbers, also called Employer Identification Numbers (EINs). You’ll need to register this number before you can open a business bank account, create a business credit profile, or hire any employees.
7. Get insurance for your business
Even if you’re running your business out of your home, don’t assume your home insurance will cover your business activities. Depending on your work, some of your business activities may void portions of your home insurance.
The type of insurance that you’ll need will largely depend on what kind of business you’ll be doing. Be sure to consult with an experienced and trusted insurance agent to determine the proper coverage you’ll need.
8. Make sure your financial infrastructure is solid
Open a shiny, new business bank account
Many banks offer businesses limited liability protection that keeps your business funds separate from your personal assets. Having your Employer Identification Number ready will make opening your business banking account quick and easy.
Separate accounts will make it significantly easier to track your family business expenses. Shop for a bank that offers perks like low-interest credit cards, free checking, no fees, and no minimum account balances.
Remember: Where you do your personal banking may not be the best choice for your business. The best fit for your family business may be at a different bank.
Stay organized and consider hiring an accountant
Unless you’re an independent accountant, doing your bookwork will probably be something new. Save on accounting fees by organizing your books and setting up a system for invoicing your customers.
Keep it simple. Don’t make it so complicated that you won’t know where to find things on your computer. Also, regularly back up your files to a secure place. The last thing you want is stress due to lost information.
If bookkeeping simply isn’t in your skill set, consider hiring an accountant. Ask around – especially to your mentors. Make sure that you find someone who understands your industry and business. A trustworthy, experienced accountant can provide excellent guidance that goes far beyond helping you at tax time.
9. Get up and running with your invoice and payment system
Tasks like invoicing, expense tracking, and reporting can be done entirely on a smartphone or laptop. Helpful resources like Invoice2go have established themselves as a dependable and secure cloud-based app that helps with the continuous management of payments and accounts receivable.
10. Protect your reputation
As a new business in your community, you want to build strong relationships for the long term. Regardless of your industry, it’s easier to get repeat customers than to establish new ones. Keep this in mind.
Also, as a family business, your brand is your reputation. Therefore, your best practices should include:
- Be known for your openness, honesty, and integrity
- Under promise and over deliver every time
- Accept responsibility when warranted
- Treat every contract customer as if they are your sole employer
There you have it. Getting started as a family business requires asking yourself some hard questions, networking, writing out a plan, and setting up your administrative backbone. You may have a few bumps in the road as you get started. Still, with consistent effort, you can also discover new-found freedom and opportunities to grow personally and professionally.
We hope these steps will help you on your journey. If you’re looking for some additional support as you get started, join our Facebook community for family-owned businesses and connect with others just like you.