Before venturing out on your own, you must take account of your family's participation and expectations about the new business.
No more regular 9-to-5 gig working for someone else and playing by their rules. You have a great idea for a business and you are ready to be your own boss. Before you can spread your wings and fly solo, you need to prepare your family for the entrepreneurial path. Your spouse and your children need to be engaged early on in the process about what's involved with the transition from having a job to running a business.
When you start a new business the entire family is affected and not always in a positive way. Becoming an entrepreneur can be emotionally draining and time consuming. It can turn into a very stressful situation for you and your family. This problem is exacerbated when family members are unsupportive or resentful of the new business. This is why it's important that you are very professional in handling business matters from the on-start. Your family must give you the respect, support, and trust you need to succeed.
While it might sound counter intuitive, start out with an exit strategy, says Don Schwerzler, a family business expert and founder of the Family Business Institute, headquartered in Atlanta. Meaning is this going to be a family business that is passed down from generation to generation. Or do you plan to retire in 25 years and sell the business. Will your children share in the assets of the business if it's sold or when you die, even though they may never work in the business or claim any ownership stake, he asks. What if you get divorced, how will this impact the business. If your children start out working in the business, what steps will be taken so that they can leave the company without interfering with the family dynamic. You need to draw up a shareholder agreement and a buy-sell agreement, suggests Schwerzler.
This may sound a like a paperwork brain drain. "I would err on the side of having too much documentation than not enough," Schwerzler says. There are going to be issues regardless of whether or not you have family members working in the business. But troubleshooting in a family business becomes more trying because it is like being in a room full of mirrors, he adds. "Each reflection or memory is slightly altered for every member of the family." For instance, what if your spouse gives you $10,000 to start the business; is this a loan? Or what if your spouse works for you free of charge or contributes to refining the business idea. Once the business starts making money, will you payback your spouse? It's smarter to have all of that laid out in writing, says Schwerzler.
Here are some things you can do to better prepare your family for entrepreneurship.
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1. Secure your family's support.
Small business experts say that significant tensions arise in the household when the family doesn't share the same expectations as the entrepreneur with regard to the direction of the business. Even more so if the family believes you are indulging a pipe dream and that the business will not succeed. They may tolerate your business in the beginning but grow resentful down the road. If your spouse doesn't believe your business is a serious venture, there will be conflict in the relationship. Say that you buy equipment for the business; your spouse has to understand this is a necessity and not view it as you wasting money.
2. Be strategic with your finances.
Unless you have come into a cash windfall, you are moving from a two-income family into a situation where you may not be making any money, says Augustus McMillan, a business consultant in Baltimore. If your spouse earns enough money to cover the household expenses, he or she might be agreeable to a reduced income from you temporarily. If not, you will need to build up enough savings to cover the loss of income for the first several months. How quickly do you see revenues coming in? "Most families are just living up to their means rather than below their means. You want to make sure that the bills can get paid as you are building the business," says McMillan.
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3. Understand what family sacrifices will be made.
It is important to have a family understanding and agreement on what each member has to give up like entertainment, vacations, eating out, and luxury items. McMillan says to examine what extent are you putting the family resources and assets at risk for the business, such as using the family home as collateral for a business loan or tapping into the funds of your 401k plan? If the business fails, the family's savings could be wiped out; the home foreclosed; and even the college education funds for the kids or your retirement money depleted.
4. Talk openly with family members.
If you are a home-based business talk to the people you live with. This can be your spouse or your parents, for instance. "They may have no idea what is going on or how hard you are working once they leave the house," McMillan says. "You don't want them making up stories in their heads about what you do." So, keep them abreast of what is happening with the business. "If you get a new client, a new development, or a new prospect tell them about it." Even if your spouse or children are not directly involved with the business, they need to be in the loop. What happens if you suddenly die, your family needs to be able to make well-formed decisions about what next to do with the business.
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5. Hold regular family meetings.
Just like you need a professional management system for the business, "I recommend that you formalize a communication system for the family," says Schwerzler. You shouldn't be having conversations in the hallway or the bathroom. There should be scheduled, structured family meetings with a written agenda. Also, you want to have rational problems and rational decisions rather than irrational problems and emotional decisions. For instance, "you may have a situation where dad is more rigid in thinking but mom is focused more on what's best for the children. So, she may dismiss why the children are showing up late at work." You want to avoid a breakdown in communication or a situation where parents are pitted against each other, he adds.
6. Teach your children about the business.
Be candid with your children about the business. Explain to them concepts like cash flow—money coming in and money flowing out of the business. But don't force them to work for the business, says McMillan It is a great idea to expose children, especially young kids, to the principals of entrepreneurship such as hard work and dedication. If your children aren't interested in your line of work and find it boring, find something that they like to do. If they like design, then you may have them work on your web page, he explains.
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7. Create a family business plan.
Ideally, you will want to establish three sets of plans: a family plan whereby members determine the overall goals of the family and the resources needed to achieve those objectives; an individual one that helps each family member determine his or her own personal goals and how to balance those needs with the family's and business's needs; and a business plan, which addresses such issues as ownership and management control, family involvement in the business, and overall strategic direction of the business. Schwerzler says use the family plan to drive the business and manage expectations, especially if you plan to have your children who are married and their spouses involved with the business.
8. Balance family life with entrepreneurial life.
It is very tough running the business and running a household. Everyone will have a different level of commitment to both tasks. But it is important that you spend enough time with your spouse, your children, and yourself, Schwerzler recommends. "When you are starting a business there are such limited resources. Money is scarce. Time is precious. You have to put in long hours. Stress levels run high when you are expecting a check to come in and it doesn't show."
McMillan says most new entrepreneurs fail to realize how many hours (which could be as much as 70 to 80 hours a week) they have to put in to make the business successful. "You can't have an employee mentality. The work isn't going to come to you, but you have to pursue the work." If you used to work only 40 hours a week as an employee, that means the time spent on other things, including family, is sacrificed and now eaten up by the business. You need to schedule in bonding time with family and other relationships.
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A final word of advice is to make sure that you set benchmarks for your new business. What do you plan to achieve one month from now, two years, five years and so on. Schwerzler says, "You always have to make sure that you are working on your business and not just in your business."