Everything you need to know about starting a family business

Family businesses offer tradespeople a great way to start up and grow a venture. They are massively important to the whole economy. In fact, the Institute of Family Business describes family-run ventures as the ‘backbone of the UK economy’.

Starting a family business

The steps to starting a family business are similar to setting up any business venture. The difference is you’ve got very close allies around to help you on your path to success.

The government reports that two-thirds of UK businesses are family-owned. That’s 4.8 million businesses run by families.

Once you’ve decided you like the idea of working with family members, you’ll need to register your business with HMRC. We’ve a handy guide to get you going on starting up a trade business.

Of course, starting a small family business will need a business plan. We can help you there, as well.

Many family businesses also bring in ‘outsiders’. They usually join because they have the skills and experience that family members might lack. That way you can strengthen your family business and maintain its future growth.

Types of family business ownership

The family business ownership structure you choose is very important. You don’t want it to be a barrier or stumbling block to progress. All family members involved should be part of the decision-making in what type of business to set up.

It might be that life partners go into business together. They then bring in their children or other relatives. The permutations for family business ownership can be extensive.

Make sure you are happy with the difference between business owners and business managers. That comes down to who controls, who makes decisions – and how much everyone earns.

There are different legal forms of business to consider. For many tradespeople, these are likely to be three main options:

Sole trader family business

If you’ve set up a sole trader business you can bring in family members to work for you. Many sole traders rely on their life partners to help them with practical requirements, like administration work.

Partnership family business

A partnership is a business that is owned by more than one person. Each partner in the business has an agreed stake in it. That includes their share of profits.

Family members can also be employed by the partnership.

A family business as a partnership can simply add new members as partners. Each family member will own an agreed proportion of the business.

Limited company family business

A limited company has at least two shareholders. For a family business, the shareholders are usually family members.

A limited company can also take on family members as employees.

Limited companies can pay their shareholders dividends, which are a share of their profits after tax. This can be an easy and clear way for all family members to benefit from their involvement in the business.

Working with family members

As in all aspects of life, there are ups and downs in family relationships. If you’re thinking about family business ownership, then first talk through the disadvantages as well as the benefits.

The pros of working with family members

• Stability by taking a long-term view of your business
• Flexibility by being prepared to work whatever hours are needed to succeed
• Keeping business profits in the family
• Lower running costs and a willingness to take pay cuts if profits are low
• Availability of finance from family members to grow your business
• Being prepared to work harder and with a greater commitment
• Support during good and bad times
• Trust is high in your family
• More time spent with your family
• Knowing who’s best at doing what in the business
• Keeping a family tradition going

The cons of working with family members

• Difficult to separate family from business life
• Reliance on one main source of income for the family
• Personality clashes can hold back the business – family relationships may change and this could have a negative affect
• Difficulty taking time off, for example, for holidays
• Lack of workplace rules can create problems and conflicts
• Not being open to new ideas and new ways of working
• Favouring certain family members who may not be the best person for a role in the family business
• Finding it hard to resign and pass the business on to others – perhaps to non-family members
• Pressure on younger generations to keep the business going when they might not want to take over the reins

Rules for working with a family business

Every family is different and applies different rules on how to live life. The same goes for family businesses.

Each of the UK’s 4.8 million family businesses probably has its own set of rules. Here are some suggestions to help family business members work in harmony:

• Set out your vision for the business, with everyone’s input and agreement. That way, you will all be part of the same team with the same goals
• Create workplace rules that everybody follows
• Know how to quickly sort out problems – you might need to bring in outsiders to help you
• Make sure everyone is kept in the loop with regular communications – don’t make decisions on your own without telling other family members
• Set up a ‘family council’ to discuss the business regularly
• Find a way to separate your work and family life
• Have end goals in sight – when family members are going to retire and others replace them, so people stay motivated and enthusiastic

FAQs

How easy is it starting a family business?

It’s as easy as starting any trade business – there are no separate rules. You’ll need to register your family business with HMRC

How should I structure my family business to keep everybody happy?

This will depend on how you want to run your family business. As with any trade business, the main options are as a sole trader, partnership or limited company. Family members can be in the business as owners, employees, partners, directors and shareholders.

What are the challenges of working with family members?

That comes down to the family! Before starting a family business, you should discuss carefully with everybody involved every advantage and disadvantage you can think of.