Family Startups: When Business Should Be A Family Affair

Why Always Start A Business Alone Or With Business Partners When You Can Keep It In The Family?

No matter which start-up guidebook you look at on the Internet: All of them are conspicuously often based on the assumption that one or more people, young, dynamic, fresh out of university, are setting out to find new ways to make money in the digital world. Globally, this is indeed often the case. But in Germany? From the smallest village plumber to Aldi, tire manufacturer Continental and detergent giant Henkel, we are a nation of family businesses. So why not, if you’re interested in founding a company anyway, set it up as a family business? We’ll now show you how to do it and what you need to keep in mind – not with a focus on founding a company in general, but specifically on the family component.

What Speaks For The Family Business

Blood Is Thicker Than Water

You can choose your friends, but not your relatives. This phrase, which is so often used negatively, has exactly the opposite meaning in the family business. Because the history of the business world is full of failed examples where it was only “chosen” business partners. Because they are usually connected by nothing more than a naked business relationship, and rarely by friendship, it is easy to fall out over this or that difficulty. Then, with a bit of bad luck, the entire business faces disaster. Of course, even in the closest family circle, it can happen that people get into really irreconcilable arguments, and a thick bundle of family problems can also put a strain on the business. But the risk of this is much lower, especially if it is a real “father and mother” business of close relatives.

Thick Together Despite Thick Stress

Most founders with a partner or even a family can confirm one thing: In the first months and years, a company eats up so much of your life that your partnership and family life suffer greatly. When dad or mom have to steer the business ship all day long and even on weekends, there is little room for anything else. Not to mention the fact that today’s digital world has even been proven to be bad for family life. At the family startup, however, everyone pulls together and works together. Everyone has equal rights, even the older kids in some cases. Everyone shares this stressful lot and is together in the process. Families can confirm this: No matter how stressful the external circumstances are, if you get through them as a family, they don’t weigh nearly as heavily. On the contrary, something as difficult as founding a company and making it successful welds the “family team” together like a bomb.

Only those who start up as a family can be sure that the startup stress will not neglect the family.

Better In The Long Term

In not all, but many cases, life as a self-employed person is determined by the fact that you have to take certain risks. Risks that you often have to decide on alone, the scope of which you are therefore sometimes unable to assess accurately and which therefore often lead to your company’s success going down the drain. With a family business, however, you definitely have more people on board to help you with the planning. This is not exactly spontaneous, because a lot of things need to be discussed, and there is less family talk. But it also prevents you from making “lone wolf” mistakes. In addition, the fact that it is a business “by the family for the family” means that you also tend to take a generally lower-risk approach. Many economists are of the opinion that this is precisely the recipe for success behind the big family giants: they take the lower risks, think much, much more long-term and, above all, want to ensure that success stays in family hands.

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Blind Faith Inward

Youthful rebellion aside: What would a young person do if his mother told him “do it this way, it will work better“? He would most likely do it exactly that way. Because that’s the secret: within a family, everyone knows from everyone that every tip, every piece of advice, every action is shaped only by the thought. That it goes well. There are so many dodges between business partners, so many maneuvers to take advantage of others. So many power games and rank structures. But in a family business, it’s all about everyone benefiting, not about one person getting their way. That, combined with a family relationship anyway, creates a business in which there is almost blind trust and therefore tends to run much more smoothly. Although there will of course be a certain hierarchy here as well, it is much flatter than even in the hippest start-up. Plus: You’re a team from the very beginning. You’re not a single founder who has to do everything on his own because he can’t afford employees in the early stages. You have several like-minded helpers. They’re all in it with the same passion that you are and that money can’t buy.

Whether it’s a small corner store or a million-dollar business, “family business” is a label that most inherently trust more than other companies.

Trust To The Outside

To explain this strength of family business, the gentle reader might consider the following questions. Who do we inherently trust more?
  • The village baker on the corner or the branch-rich big baker?
  • A large family-owned construction company or a young, dynamic small business?
  • The third-generation car repair shop or the chain store?
  • The blog of a family or the report in a major newspaper?
  • The sausages sold throughout Germany by a family business or a low-price brand?

Admittedly, these questions were asked on purpose so that the family business would not be presented each time as the small underdog, for which most people already have greater sympathy simply because of its underdog mentality. But for most, the tipping of the scales may have tended to point towards the family business, regardless of size. Not a mind game, but a fact: Most consumers associate a family business, no matter how large, with a more careful, less capitalistic approach. That trust is a bonus you can damn well use at any stage of the startup.

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What’s Essential To The Family Business

The Kids Get Involved Voluntarily

It’s the stuff of many a TV family drama: father and mother want junior to take over the family business. But he has something completely different in mind for his future. It’s clear that this doesn’t just come from the minds of scriptwriters, but can also happen in reality. Of course, if the kids are still of school age, they have no business in the family business anyway, except perhaps for an internship, and the laws against child labor apply there as well. But even if their professional lives are approaching, independent parents should not blindly assume that their offspring will join the company. This also applies to the case that the company is only to be founded when son or daughter could already join in in terms of age. In addition, one thing should apply: There are very many liberal professions in Germany in which it is possible to start a business without being able to present a master craftsman’s certificate or similar. But the offspring fresh out of school should, if no parent has a master’s degree in the field and is therefore allowed to train, actually “learn something decent” beforehand. You can learn an enormous amount from your parents. But having had at least one in-depth look into another company during one’s professional life, actually learning a profession from scratch, can also offer many advantages for the family business and bring in fresh knowledge.
Even in successful family businesses, kids don’t necessarily want to follow in their parents’ footsteps.That is to be accepted in any case.

Someone Gets The Money

When a family starts a business, it has the definite advantage that the equity is higher. But still, few will be able to avoid looking for other sources of money. Here it is true that there are many different but suitable ways, which start with crowdfunding and by no means end with federal and private funding programs. But in most cases, the lion’s share will be provided by a normal loan. Because of the higher equity capital as a family, one has significantly better chances than a single founder when applying for it. If a good business plan is in place, there are no other hurdles. But: Only one person should officially act as debtor. This leaves room for all the other family members in the company. For example, if money is needed again at a later date before this loan has been repaid. This also applies in view of the fact that a joint debt would allow more money and sometimes better conditions.

The Right Corporate Form

Of course, you could set up the business as a GmbH (limited liability company) and then manage all the family members as ordinary shareholders. Of course, you could also choose the classic multi-person startup variant, the general partnership, if you only want to trade. Again, many roads lead to Rome. But in view of the special family situation, one should rather consider the limited partnership for several reasons:
  • There is no minimum capital contribution, with the GmbH it is 25,000 euros.
  • A family member acts as “general partner”. He acts outwardly as the official representative of the company, is liable for the company with his private assets.
  • All other family members become “limited partners”, i.e. partners. They must make a minimum contribution to the company. However, this can be as little as one euro. In return, however, they are only liable for the amount of their contribution.
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Normally, the law stipulates that all limited partners receive only four percent of their capital contribution from the profits. However, it is possible to achieve a completely different division by means of a partnership agreement, in cases of doubt precisely matched to the head count of the family.

What Happens In Business, Stays In Business

Not only does what happens in Vegas stay in Vegas, but so does what happens in the family business. Family founders should frame this rule on the office wall. Of course, the family business has the great advantage that everything can be discussed much more openly. But no one can guarantee that an amicable agreement will always be reached. But where in any other company you only see people the next day, in a family business you live with them under one roof. If you can’t separate work and free time, you’ll soon find that the famous work-life balance can also go wrong in this case, perhaps even more so than in any other. That means after hours is after hours. Mom may still be the complementary parent who holds the main decision-making power. But the distribution of roles has to be classic-family again. A good piece of advice on top of that: It’s best to leave business issues in the company, even if you’re itching to discuss them with your partners over dinner.

how tempting, even family business should not be a topic of conversation or discussion away from the company.

Beware Of Inheritance Tax

The business may now be brand new, small and struggling to compete in a competitive market. But the goal is to eventually leave that sharp surf and become a consolidated business. This also means that at some point, for biological reasons, the scepter will have to be passed on. It is true that even after the latest amendment to the law, it looks like family businesses will retain a special position in inheritance tax law. But under stricter rules. That is precisely the point: In the eyes of many outsiders, family businesses are nothing more than an attempt to legally smuggle assets worth millions past the tax authorities. So it’s clear that future politicians may listen to these accusations more closely and translate them into appropriate legislation. Already the recent change in the law happened because of this. Here, one can only advise to always keep this topic in mind from day one and to do everything so that the family business can one day be passed on to children and children’s children.

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Distribution Of Roles Drawn With A Ruler

When it comes to the distribution of roles, start-ups are a completely different world than established companies. This doesn’t change in family business either. Mom does the bookkeeping one day, the son stamps letters, only to look after the website the next day while Mom advertises on Facebook. That’s perfectly okay and necessary. But: each family member should be assigned fixed roles from the start, based on skills and personal inclinations. Even if these may only be theoretical in the first year. Once you’ve reached safer waters, everyone should also gradually slip from all-around talent into their fixed role. This approach has a lot to do with psychology. After all, if you’re always the “jack of all trades” over a period of years, you’re much more likely to see the family business as a “clutter store. Work performance then suffers because it seems much more chaotic than doing a fixed job or at least a sharply defined number of tasks.

Do Not Compartmentalize

Once non-family employees are part of the business, “family behavior” should be dialed down for the sake of respect and respectability.

By its very nature, a family that is very intertwined tends to be a bit closed off to others. In the private sphere, this is not a problem either. In the company, however, this approach should be avoided at all costs. Because thanks to successful business management, the big day may soon come when the family business will also have to place a job ad. Then the company will really be at a crossroads. Because if everyone decides together, they are much more inclined to this aforementioned compartmentalization. In a negative sense, blood is thicker than water. Therefore, one person should make the final decision for or against the applicant, even if everyone has discussed it. It is very important that even in the event that at some point the external employees outnumber the family members, you should never let this invisible wall come into being. Because if you don’t, you’ll quickly have the reputation of being an almost feudally run business. This is especially true if a family member joins later and is put in front of others only because of this status. No, if you really want to be successful as a family, you have to accept that there can be, and must be, people outside the immediate company management who are better at something than a family member and should therefore rightly have certain decision-making powers.

Conclusion

Anyone who has a family and is toying with the idea of starting a business anyway should seriously ask themselves “why not with the family?”. After all, having “kid and cone” on board not only makes sense in business, but is often enough the extension on the lever with which you simply overturn the superiority of your competitors.

Image sources:

1) fotolia.com © dusanpetkovic1

2) fotolia.com © Monkey Business

3) fotolia.com © Karanov images

4) fotolia.com © Viacheslav Iakobchuk

5) fotolia.com © Photographee.eu

6) fotolia.com © fizkes

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