Managing the Foundation

MANAGING FOUDATION

Methods to initially structure a family business

Introduction

Many family ventures like the one outlined in the Managing Foundation case study start as side projects and are pretty casual when it comes to formalities and structuring. However, from the case study on managing foundation we view how friends and relatives navigate their businesses, it is realized that family-run companies desperately need structure, and delicate family dynamics require careful planning. There are several ways of initializing structure a family business. These include;

The idea of running a business can trigger havoc on a relationship. For example, make it a policy not discusses about business at the dinner table, on Saturdays or during family vacations. It is well if you need to break these rules, occasionally, for a quick check-in, but try to limit these conversations to just a few minutes and then switch back to family time. 

1. Separating family and business time

Creating a family enterprise is not right for every family, but it is found incredibly fulfilling. A family company offers an incredible sense of identity and connection with each other and the business. We should be in a position to remember that even though your venture may have started as a casual conversation over dinner, you need to take or follow the administrative formalities to the letter.

Unless you have a big family with enough experience and expertise to fill each role, your business will depend on non-family members. The moment you hire or employ a non-family member into the business, it is fair to treat everyone equally when it comes to hiring, salary, benefits and opportunities for growth. Special treatment, even the perception of special treatment, to family members de-motivates employees and creates unnecessary tension. And never or incorporate family members on the payroll if they cannot make a real contribution to the business.

1. Do not create two classes of employees

Small business owners invest so much of their personal time and money into the businesses that personal and business finances can become indistinguishable. However, they need to maintain separate bank accounts and accounting practices for business and family use. Once you have established a Limited Liability Company or corporation for this business, keeping a sharp line between personal and business mandatory, but it is advisable for every business.

1. Do not mix personal and business finances

For the typical small family business, the Limited Liability Company is a great choice in business structure, since it offers liability protection without adding the administrative formalities associated with a corporation. In addition, Limited Liability Company is typically taxed as a pass-through entity, and business profits and losses flow through to the owners’ individual tax returns. 

1. Get a formal business structure

The options to incentivize members of a small-business founding team and the value of stock options, bonuses, and ownership compared to salary.

Small businesses normally look for ways to provide their employees with ways to participate in the success of the small business.  While stock options and restricted stock are popular ways to reward employees in public companies, these and other plans are also available to small businesses. The most popular ways small-businesses founding team incentivizes its members are as follows: