{"id":12858,"date":"2024-10-11T13:51:17","date_gmt":"2024-10-11T12:51:17","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=12858"},"modified":"2024-10-14T14:55:59","modified_gmt":"2024-10-14T13:55:59","slug":"starting-family-business-8-tips-for-success","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/starting-family-business-8-tips-for-success\/","title":{"rendered":"Starting a family business: 8 tips for success"},"content":{"rendered":"

You\u2019d generally assume that starting a family business is easier than doing it alone. In many ways, that\u2019s true\u2014a family member can offer vital emotional support, bring an element of trust and loyalty to your joint venture, and share your personal values.\u00a0<\/span><\/p>\n

However, a considerable potential challenge is conflict, which can often intensify between relatives. If this happens, you risk hurting the business and your relationship with family members.\u00a0<\/span><\/p>\n

But don\u2019t let that discourage you. If you make a clear plan, define your goals, and support each other, being part of a family business can be incredibly rewarding. Keep reading to find out our top tips for success.\u00a0<\/span><\/p>\n

1. Incorporate your family business<\/h3>\n

One of the first decisions you\u2019ll need to make when starting a family business is which legal structure is right for you. We recommend a <\/span>private company limited by shares<\/span><\/a>, the UK’s most popular type of trading company. <\/span><\/p>\n

This is an incorporated business structure in which every owner (called a shareholder) is responsible for the company\u2019s debts up to the amount they have paid (or agreed to pay) for their shares. This is known as limited liability. In other words, multiple owners share the financial risk and protect their personal assets.\u00a0<\/span><\/p>\n

Our Fully Inclusive Package - the perfect way to start a new business<\/span><\/a>\n Can I transfer shares to my spouse?<\/span><\/a>\n 7 tips for effective succession planning<\/span><\/a>\n <\/p>\n

In general terms, limited companies are considered family-run businesses if the business owner or their family members have at least 25% of voting rights in the company. So, you\u2019ll need to allocate shares accordingly when registering the family business under this legal structure.<\/span><\/p>\n

Unlike unincorporated businesses (i.e. sole traders or traditional partnerships), a limited company is a separate legal entity, meaning it exists independently of its owners. This is particularly beneficial for succession, making it easier to pass down when you\u2019re ready for future generations to inherit the family business (we’ll look at succession in more detail later in this blog). <\/span><\/p>\n

Incorporating a family business as a limited company offers additional benefits, such as tax efficiency, credibility, and flexible profit distribution.\u00a0<\/span><\/p>\n

2. Allocate roles and responsibilities<\/h3>\n

A major advantage of starting a family business is flexibility. Having a personal relationship with your business partner(s) makes it easier to share roles and responsibilities and generally help each other out.\u00a0<\/span><\/p>\n

However, if unmanaged, this can confuse who does what and who is accountable for oversights. It may be a tricky conversation, but allocating roles and responsibilities when starting a family business is essential.<\/span><\/p>\n

In the case of a limited company, you should discuss who wants to be a shareholder, a director, or both. Each of these positions holds different roles within the company.<\/span><\/p>\n

For example, shareholders are the owners of the company, investing in it financially in the company, and voting on certain big decisions. The directors, meanwhile, <\/span>run the company on a day-to-day basis and are responsible for ensuring it complies with the law.<\/span><\/p>\n

\n \n \"Revolut\n \"Revolut\n <\/a>\n <\/div>\n \n

What about a company secretary? The law doesn’t require a private limited company to have one, but it’s beneficial to have one if someone is qualified for this role.\u00a0<\/span><\/p>\n

Then you will have to consider other more standard jobs within the company, such as those in customer service, social media management, and supplier relations. You\u2019ll need to share these roles between you before the company expands and takes on more employees.<\/span><\/p>\n

If you\u2019re unsure how to split these functions, it helps to assess each person\u2019s soft skills, personal qualities, and professional experience, as one person could be better suited than the other. This way, everyone plays to their strengths, and you\u2019ll maintain fairness and control of the family business.\u00a0<\/span><\/p>\n

3. Determine how you’ll manage disputes<\/h3>\n

Disputes are common, especially if it\u2019s a family business. As much as you trust each other now, relationships can break down for any number of reasons.<\/span><\/p>\n

Only you and your relatives know how your relationship works. Before starting a family business, evaluate the strengths and weaknesses, where problems could arise, and how you plan to fix them. It is also strongly recommended to plan formally for dispute resolutions, should they ever arise. Below are some of the ways you could do this.<\/span><\/p>\n

Create a shareholders’ agreement<\/h4>\n

If there are multiple shareholders in the family business, creating a shareholders\u2019 agreement is useful. This legally binding contract supplements the articles of association and helps protect shareholder relationships, their rights, and the company. It can also specify procedures for resolving feuds and deadlocks if\/when they arise. <\/span><\/p>\n

Review your articles of association regularly<\/h4>\n

Most limited companies in the UK adopt model (default) articles of association. They provide a basic scope of directors\u2019 duties, shareholders\u2019 decision-making powers, and how to manage conflicts of interest.\u00a0<\/span><\/p>\n

However, the model articles are pretty limited. Therefore, you should review and <\/span>update your articles<\/span><\/a> where needed to ensure that the family business remains adequately managed over time and to make provisions should a dispute arise.\u00a0<\/span><\/p>\n

Assign a mediator<\/h4>\n

A mediator is a third party that aims to settle family disputes if you\u2019re unable to. As an impartial advisor, a mediator\u2019s role is to find a suitable resolution that benefits all those involved. This method helps minimise stress and disruption to the family business during conflict. <\/span><\/p>\n

4. Define and commit to a shared purpose<\/h3>\n

Did you know that family businesses with clear goals and values tend to perform better than those without?\u00a0<\/span><\/p>\n

According to <\/span>PwC\u2019s Global Family Business survey<\/span><\/a>, which polled over 2,000 worldwide family businesses, 73% of companies that experienced double-digit growth between 2022 and 2023 were those with a clear set of family values and an agreed business purpose. Those that were particularly successful had a strong environmental, social, and governance (ESG) strategy.<\/span><\/p>\n

How to write a business plan<\/span><\/a>\n Preparing your business for the new tax year – 2024\/25<\/span><\/a>\n What is the Business Asset Disposal Relief scheme, and is my business eligible?<\/span><\/a>\n <\/p>\n

When starting a family business, you should define a commercial purpose that\u2019s meaningful to everyone, including your descendants, who will take over one day. For example, you could focus on attracting and retaining top talent, creating a diverse board of directors, or strengthening customer trust.<\/span><\/p>\n

Or perhaps you\u2019re passionate about sustainability or new technologies. Focus on your motivation to start a family business and work together toward a common goal to achieve success.\u00a0<\/span><\/p>\n

5. Create a clear succession plan<\/h3>\n

You\u2019re probably thinking of starting a family business for several reasons. One of those is likely to pass it down the family tree. <\/span><\/p>\n

To do this successfully, though, and to ensure the family business survives, you need to create a clear succession plan from the get-go and equip the next generation with the right skills, knowledge, and interest for when you\u2019re ready to step down.\u00a0<\/span><\/p>\n

Below are a few strategies that could make the transition smoother.\u00a0<\/span><\/p>\n

Communicate clearly<\/h4>\n

Communication is key to succession planning. Don\u2019t let your future successors speculate about your plans for the family business when you retire or are no longer around. Instead, be clear and transparent about your succession plans\u2014when do you plan to stop working, and who do you want to pass the company on to?<\/span><\/p>\n

Your circumstances and plans might change over time, so remember to be open about them and what they could mean for the next generation.\u00a0<\/span><\/p>\n

Encourage interest<\/h4>\n

For succession to work in a family business, those who will inherit it need to <\/span>want<\/span><\/i> to take over. That fundamental desire is necessary for the company to be managed properly and succeed long-term.<\/span><\/p>\n

Therefore, to inspire and excite your descendants about running the family business one day, you should encourage a genuine interest from an early age. This could be as simple as using positive language around them when you talk about the family business.\u00a0<\/span><\/p>\n

\n \n \"Get\n \"Get\n <\/a>\n <\/div>\n \n

They should feel pride, satisfaction, and optimism a<\/span>bout potentially becoming business owners. In contrast, they probably won’t want to get involved if you constantly say that running a family business is stressful and complex. But remember to paint an accurate picture and avoid misleading them. <\/span><\/p>\n

Educate the next generation<\/h4>\n

Your future successors need to understand what it means to own and run a company. Educating and supporting them on that journey will set them up for success and give you the peace of mind that you\u2019re leaving the family business in good hands. <\/span><\/p>\n

There is no right or wrong way to do this, and it depends on their age. For instance, if they\u2019re teenagers, you could start with basic financial education\u2014things like budgeting and how credit cards work. If they\u2019re older, you could teach them about directors\u2019 duties, preparing accounts, and understanding share structures. You should also advise them on:<\/span><\/p>\n