Have you picked up a new hobby during the lockdown that you think you could monetize? Do you have a secret family tradition that could be a potential business opportunity? Well, perhaps it is time to take the plunge.
Starting a business with your family is an exciting prospect, as you can grow together, see new sides of one another, and genuinely enjoy what you do. However, it is not without its risks. Going into business with your family members can either bring out the best or worst in each one of you.
To ensure that you get the best result possible from going into business with family members, read on for a little guidance.
5 Ways To Turn Your Hobby Into Family Business
1# Look For The Signs That Tell You it’s Time.
Although your decision to turn your hobby into a family business may be based on instinct, you should still think it through before making the leap.
Founder of Javapresse Coffee Company, Raj Jana says that one of the key indicators of knowing that you should turn your hobby into a business is that you enjoy doing it more than your day job.
This, of course, should be the same for your family members who will eventually become your business partners. When your hearts are in it, you know that you can devote the passion, time, and patience into turning your collective hobby into a full-fledged business.
If the potential income of this hobby can rival your current job’s income, you will know that it has the capacity to become a reality.
2# Learn To Delineate Between Family & Business
One of the biggest challenges that can come from starting a family business is quite literally that of learning to delineate between family and business. It’s easy to fall into bad habits and start discussing work matters during leisure time, and this could significantly change your family dynamic.
Try to compartmentalize your work relationship and your family relationship as much as possible. This understandably takes some time to master, but when you are able to distinguish between these two areas and create clear boundaries it will give you a sense of peace.
When in doubt, try to remember why you decided to start the business, and recall how the decision may have stemmed from a family tradition or hobby you were passionate about.
You don’t want to end up damaging your relationship with a family member over business, so do what you can to draw the line – even if it means not treating each other like family during work.
3# Match Assignments To Areas of Expertise
When you are deliberating on who to bring on board with your family business, you will need to focus on their expertise. Ken Wentworth of Wentworth Financial Partners warns that failure to do so can make room for a lot of ambiguity which can only get more complicated down the line.
You should not fill in a position to accommodate a family member just for the sake of it, as this can backfire if you are faced with difficulties and incompetence later on.
You should not have to feel like you need to act on familial obligation, and viewing your family members as business partners will help you objectively place people in the right roles.
One way to do this is to apply strict criteria for each position, and if someone’s qualifications match, then it will make sense that the role will become theirs.
4# Take Care of Legal Matters
One of the most important steps to legitimize your family business is to register it as a legal entity or a Limited Liability Company (LLC). While each state has its own rules and processes for forming an LLC, there is a rough outline of steps that applies for all aspiring entrepreneurs.
This includes creating an operating agreement, which is extremely important in a family business so as not to cause any unwanted disputes.
An operating agreement ensures that members of the LLC each know the rules of ownership, including their rights, responsibilities, voting power, percentage of interests, allocation of profit, and other provisions should one of you eventually decide to sell their shares, or become incapable of carrying out an assigned role.
5# Craft a Succession Plan
When starting a family business – or any business for that matter – it is imperative that you think long-term. For family businesses, this has a lot to do with passing on what you have built to the succeeding generation.
Take the time to craft a succession plan which should encompass information regarding transferring management or ownership. This should detail shares or assets, involvement, and even taxes.
Succession planning could touch on very sensitive ground as it requires honest conversations about death, aging, and finances, and it may be something you and your family members avoid.
This is why it is wise to get a lawyer or accountant on board to ease the burden and tackle the plan from an outsider’s standpoint. They can also offer valuable advice as some actually specialize in business succession planning, and can instruct you on tips for minimizing tax payments when a transfer occurs.
Experts often recommend that you start crafting this plan as much as 5-10 years in advance, and include family members in the discussion. At the end of the day, you should be pragmatic and do what is best for the business that you started – even if this means not giving equal shares, or not having your first-born child take over.
When you have this plan set in place, you can begin training your successors to smoothen the transition when the time comes for you to turn it over.
Turning a hobby or tradition into a family business comes with its fair share of pros and cons. But following these tips, together with those of other experts, can turn your dream into a reality. It can act as a continuous learning experience and an opportunity worth taking.
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Author: Melissa Jordans