Family businesses, or those companies that have two or more related family members at the helm, are a common denominator across the business landscape.
These companies are as small as the corner grocery and as large as the global enterprise. At both levels, there are opportunities and challenges of running these businesses with a family member at the helm. Successful family businesses can teach us a lot about mixing love with commerce. Entrepreneurs considering a business with a life partner should pay attention to the unique strategic challenges that arise when your business includes a family member.
Family Businesses Have an Important Place in Our Economy
National surveys show family businesses play an important role in the American economy. A Score survey highlighted some of the statistics showing:
- Family-run companies employ 60 percent of the U.S. workforce.
- They create 78 percent of all new job growth each year.
- These companies are not necessarily small; Ford and Walmart are family-owned and operated.
However, the path to entrepreneurial success in these ventures is not easy. This is especially true when your business partner is also your partner in life. If the business fails, how much strain might it put on your family unit?
Pros and Cons of the Family Business Model
While the family business is thriving, myriad unique problems affect their long-term success. U.S. News & World Report reminds entrepreneurs: “To start a business with your husband or wife, you’ll attach your family’s financial future to a single business entity, which is a risky maneuver.”
Some of the benefits you may take for granted, like health insurance and a predictable schedule, will disappear, at least for a while. The feeling of ownership and pride in a small business is something you probably naturally want to share with your spouse. Weighing both the pros and cons of the family venture is an important first step toward small business entrepreneurship.
Some of the pros of launching a family business model with your spouse include:
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- Sharing successes and goals with a life partner can be pleasant.
- Making more income could lessen financial pressures.
- Profits will be kept in-house in the family unit.
- It’s a business partner in whom you can place your trust.
- It will give both of you a deeper understanding of what is going on at your significant other’s workplace.
However, there are drawbacks to launching a business with your spouse or life partner.
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- Working together may put added pressure on the relationship.
- It may be harder to leave problems at work instead of bringing business issues home.
- Your relationship could negatively affect employee productivity.
- Failure of the business could hamper the relationship.
Work-related conflicts are just one of the issues you’ll deal with if you go into business with your life partner. One of the biggest issues every family business runs into is succession; what happens when you and your spouse decide to move on? A recent survey showed only 30 percent of first-generation family businesses are successfully passed on to the next generation. Nearly one-half of family business owners say they are planning on retiring in the next five years but also say they don’t have a plan for succession to keep their company alive after they leave.
A PWC survey backs up these findings; only 18 percent of the family-owned businesses surveyed have a succession plan in place. For those that planned proactively, PWC found that:
- Nearly half of these companies plan to bring in outside experts to run the company after they leave it.
- Nearly 40 percent say they’ll likely buy into or merge with another business.
- 62 percent of family business owners say they’re encouraging the next generation to seek work experience outside the company with the idea that they’ll apply those skills later in the family business.
Having a robust exit strategy is just as important as determining if your marriage or life partnership will withstand the rigors of a new business. What questions should you ask upfront to determine whether you should take the new business leap with your life partner?
Questions to Consider Before Going into Business with a Life Partner
Perhaps the trickiest model to consider for a small business is one where the leadership is also life partners. Being partners in life and in business is inherently challenging; how will you relate at work after an argument at home? However, it can also bring you together in new and unexpected ways.
The real question to consider when contemplating starting a small business with your spouse is, what could happen to your relationship if the business fails? While 80 percent of small businesses make it through the first year, the number drops precipitously after that, according to the U.S. Small Business Association. Only half of all small companies make it to the five-year mark, and only one in three makes it to ten years. The Harvard Business Review says 70 percent of all family businesses ultimately fail.
These numbers illustrate the importance of basing your new small business, not on the emotionalism of working closely with someone you love, but instead on some hard questions that you’d ask anyone with whom you go into business. If you’re considering starting a small business with your life partner, make sure you consider:
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- Is your spouse truly qualified for the role?Asking this question will help determine the job description and delegation of duties in the company. Since this is “just business,” sit down with your life partner to discuss responsibilities and write it down so that everyone is clear on their contribution well before the business launches.
- How is your communication with your spouse now, before the business launches?If you struggle to communicate with your life partner now, how will you work together when the added stresses of small business funding come up? How will you separate from home relationship problems at the office? Don’t make the mistake of taking your marital communication woes into the business; it will only create drama that will reduce employee productivity in addition to your own.
- Is the business being saddled with saving your marriage? While you won’t see this difficult question on a list of common entrepreneurship tips, it’s important to be honest enough to ask it. Work can cause couples to drift apart, so it may be tempting to invite your life partner into the business in an attempt to pull the relationship back together. While it’s an understandable and even noble inclination, the reality is the added stress of starting a new business may make the relationship worse. Get marriage support before bringing your life partner into the fold.
- Do you enjoy being together?If the business model requires lots of togetherness, try to determine if this is a good or bad idea. If you’re both uncertain, try a trial project to see how you interact. It’s easy to romanticize the togetherness that comes from starting a small business. The reality is that it’s just business and mixing a romantic notion of your togetherness with the cold hard facts of commerce is not in the best interests of the business—or your relationship.
- Are you focused on the same goals?What defines success for the two of you? Having similar mindsets around work ethic, goals, and what makes for a successful business are crucial to working together successfully. This will make tough decisions like whether or when to go for small business funding much easier. Talk openly about potential business decisions upfront to understand how you both define success.
Adding the risk of a small business to a relationship may threaten both; that’s exactly why questions of whether to join forces with your spouse in a small business should be considered carefully. It takes an exceptional spousal relationship to build an exceptional business, and entrepreneurs should use both their heads and hearts to make these decisions. The risks of failure are great, but the rewards may well make the risks worth it.
If you’re ready to take the plunge, and are looking for a way to obtain funding, download our Innovative Funding Strategies For Entrepreneurs to learn about the innovative solutions Benetrends offers to help you fund your new family business.