what is a family business plan

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Formalize your business idea with the right ownership structure, business entity and tax considerations to protect the longevity of your company.

Companies where multiple employees, owners or managers are members of the same family are quite common. It’s estimated that more than half of all companies in the U.S. are family businesses. Just as there are many variations on what it means to be a family, there are many ways to structure a family business. Here are a few things to think about if you’re establishing a business with your relatives.

Know your ownership options

Most family businesses are structured in five models of ownership .

• Owner/operator : In this model, ownership control is limited to one person or couple. A good example is the British monarchy, where the crown passes to the sovereign’s firstborn. There needs to be a clear succession plan in place for maintaining this ownership model.
• Partnership : In this model, only leaders in the business can be owners and benefit financially from the company. This prevents family members who do not contribute to the company’s profits from benefiting from others’ hard work.
• Distributed : This is the most common ownership model. Distributed family-owned businesses pass ownership down to most or all descendants, whether or not they work in the company.
• Nested : This structure consists of parts of the family agreeing to own some assets jointly and some assets separately. It’s called “nested” because smaller family ownership groups sit inside larger ones. For instance, the Jones family could own the company, but only certain family members own the rights to the company’s IP.
• Public : In this model, a portion of the shares are publicly traded or the business acts as a public company while remaining privately held by the family.

There’s no one ownership model that’s right for every family business, but these decisions are important to make at the beginning of the venture.

Find the right entity

Ownership is just one piece of the business structure. You will also need to set up a formal legal entity, such as a corporation or LLC. While it may be tempting to skip this step, formalizing your business is important, perhaps more so when working with relatives.

“Drawing up a legal document like a Partnership Agreement or Operating Agreement will force everyone to deal with sticky matters upfront,” writes one expert in Entrepreneur . Likewise, establishing a business entity protects individuals from the business, in case something goes wrong. Should the business be sued or have to declare bankruptcy, there’s legal protection for the family and individual owners.

An LLC is a great option for family businesses. LLCs offer liability protection without many of the administrative requirements of a corporation.

[Read more: Getting Ready to Launch? How to Choose the Right Business Structure ]

While working on your overall structure, keep taxes in mind. Your tax burden may impact who in your family assumes certain roles.

Set up good governance

Many family-owned businesses set up a system of governance where family members can weigh in on business decisions in a formal and structured way. These governance systems can be as informal as a family assembly or family council, or as official as a board of directors or shareholder council.

“Large and durable family businesses tend to have strong governance. Members of these families avoid the principal–agent issue by participating actively in the work of company boards, where they monitor performance diligently and draw on deep industry knowledge gained through a long history,” McKinsey research found .

The purpose of a governance system is to provide clarity on the roles, rights and responsibilities of all family members, as well as to regulate any business discussions and disputes that may arise before they impact the business. Your governance system will likely be decided based on the ownership model you choose.

[Read more: A Guide to Creating a Board of Directors ]

Get some advice on taxes

There are certain ways hiring and working with your family members may impact your taxes , especially if you’re working with immediate family. “The taxes you withhold and report are slightly different depending on the role they play, how your business is organized, and your relationship with them,” reads TaxSlayer . “For example, hiring your husband or wife will alter your tax responsibilities; hiring your second cousin will not.”

As you work through your ownership model and business structure, keep your tax burden in mind. Taxes may impact who in your family assumes certain roles. Speak to a lawyer or a CPA as you structure your family business to learn more.

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A Simple Family-Owned Business Succession Planning Guide

July 24, 2024

Succession planning is really important for family businesses. It helps keep things going, stays steady, and keeps family traditions alive. Approximately 40% of family-owned businesses in the United States transition into second-generation enterprises. [1]

Whether your business is small or big, succession can be a lot to handle. To do it well, you need to think ahead, plan smart, and think about everything carefully. Learn the basics here so you can manage it well when it's time.

What is Family-Owned Business Succession Planning? 

Family-owned business succession planning is when leadership and ownership move from one generation to the next. It's more than just passing on stuff. It's about keeping your business's history going and keeping your family close through careful planning.

You need to handle:

• Changing who owns the business.
• Making sure new leaders are ready.
• Keeping the business financially strong.
• Making sure your family remains close.

You pass on parts of the business to the next leaders and teach them how to lead. You also make sure the business stays financially healthy during and after the switch. And you work to keep family arguments small and family love big.

You might also like:  10 Best Resources for Small Business Owners to Learn & Grow  

What Does Family Business Succession Planning Involve?

Family business succession planning involves several important parts. First, you need to plan carefully by setting clear goals and timelines for how the business will pass to the next generation. It's also important to find potential successors early and help them grow their skills for leadership.

Legal and money matters are also important:

• Sort out taxes .
• Plan how to divide the estate.
• Figure out how much the business is worth.

Talking openly is key during this process to ensure the family knows the plan and has the same goals. Finally, managing risks well is crucial for dealing with surprises or disagreements. All these parts work together to make the change in leadership and ownership of family businesses go smoothly.

You might also like:  Small Business vs. Micro Business: Differences Explained  

7 Stages of Succession Planning Process in Family Businesses

Navigating family business succession typically unfolds in seven distinct stages: 

• Assessment and Preparation
• Clarifying Goals and Objectives
• Identifying and Developing Successors
• Transition Planning
• Estate Planning
• Business Valuation and Financial Planning
• Executing the Plan

Explore each stage in detail so that you gain a full understanding. 

Recommended:  Growth Financing: Grow Your Business to New Heights  

1. Assess Your Situation and Prepare 

Start by evaluating your business's current state. Conduct a thorough assessment of financial health, operational strengths, and improvement areas. 

Develop a SWOT analysis to identify key Strengths, Weaknesses, Opportunities, and Threats. 

For example, it might look something like this: 

• Strengths: Our business is well-known with loyal customers.
• Weaknesses: Potential successors may lack experience compared to our competitors.
• Opportunities: We could grow by selling internationally and offering more products.
• Threats: Competitors might increase their efforts if they know a new leader is coming.

With a SWOT analysis, the family can understand where the business does well and where it needs to improve. This helps them better plan for passing the business on to the next generation and sets a strong foundation for the succession plan for families.

2. Define Clear Goals and Set Measurable Objectives

Have open talks to agree on the family's vision for the business. Create clear goals like "keep our strong customer loyalty" or "grow into Mexico's market." But make them specific and measurable. 

Set goals that everyone can measure to guide success. Planning in detail ensures everyone knows what they want and when. For example, "Plan how to sell our main products in Cancun gift stores by 2025" is better than just saying, "Sell hats in Mexico."

3. Identify Potential Successors and Invest in Their Development

Find family members or important employees who could be leaders. Help them learn with mentors, training, and chances to try different jobs. Spend time helping them get better so they feel ready to lead when it's their turn.

Consider paying for your successors’ education. If feasible, invest in their degree and/or skills training. 

4. Create a Detailed Transition Plan

Create a clear plan for how ownership and management will change over time. Write down who does what and when to keep things running smoothly. Ensure everyone knows their part in the change so everyone feels sure about where the business is going.

When you talk about passing on the business and who's in charge next, it helps your family. They may need time to emotionally prepare for the change.

5. Plan for the Future of Your Assets

Take care of legal matters related to asset division and reduce tax burdens. Develop an estate plan that matches your succession goals. You want to ensure a smooth transfer of ownership while following laws and regulations. 

Your attention to detail protects the business from financial problems. Planning ahead and seeking advice from legal and financial experts also helps prevent potential disagreements.

Of course, involve an attorney in your area that specializes in business succession. With professional guidance, you can get advice about your specific situation. 

6. Assess Your Company or Business's Value and Plan for Financial Security

Figure out how much your business is worth by checking its assets and how much money it might make in the future. Plan ways to keep making money after the change in leadership so the business stays strong with new leaders. 

Consider conducting regular updates to your business valuation to monitor changes in the market and ensure your strategies remain relevant. Make backup plans and find new opportunities to grow to prepare for unexpected money problems.

7. Implement and Monitor Your Succession Plan

Start using your plans with close watch and checking. Keep checking how things are going, and change plans if you need to deal with problems or take chances. Talk to everyone involved to make sure they all know the plan and agree on what to do. 

Set each part of the plan well and be ready to change if needed. This will help ensure the switch goes smoothly and your business's legacy remains strong.

Family Business Succession Planning Guide Examples

When planning succession in your family business, consider these examples tailored to different situations:

• Single Successor Leadership. You might groom one family member through training and mentorship to become the CEO of your manufacturing company. 
• Multiple Family Member Ownership. In your retail business, you could distribute ownership among several family members, each focusing on different areas like operations, finance, and marketing.
• Joint Leadership. Consider sharing leadership responsibilities among siblings or family members to leverage their unique skills and effectively manage the business.
• External Management. If no family member is ready to take over, you might bring in an experienced external manager or CEO. This can ensure professional leadership and potentially prepare the business for sale or IPO.
• Gradual Transition. Rather than a sudden change, you might gradually step back while your successor takes on increasing responsibilities over time. This helps the business to maintain continuity and you to provide mentorship.
• Sale or Merger. As part of an exit strategy, you could sell your business to a strategic buyer or merge with another company. This might be appropriate if no family member is suitable or interested in taking over.

These examples illustrate how different approaches to succession planning can be tailored to fit your family business's specific needs and goals, ensuring long-term success and continuity across generations.

Plan Your Next Generation Financial Legacy with Centier

Family business succession planning ensures continuity, stability, and family values across generations. It involves setting clear goals, preparing successors, addressing legal and financial aspects, fostering open communication, managing risks, and executing the plan effectively. 

Strategies can range from grooming a single successor to distributing ownership among family members or considering external management or sale to new owner. These approaches ensure a smooth transition and preserve the business's legacy while adapting to future needs and goals.

Need help with your family business succession plan? Learn more about  Centier’s estate, gift, trust, and individual tax services  and  explore our business management services today . 

Source: 

[1]  https://www.johnson.cornell.edu/smith-family-business-initiative-at-cornell/resources/family-business-facts/  

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12 Family Business Ideas—Plus Tips for Starting a Family Business

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If you’ve been thinking, dreaming, and planning to start your own small business, it can be overwhelming to consider all the steps and work it will take. Wouldn’t it be easier if you had some help along the way? That’s why many people choose to start their small business with their family.

Once you have the support of family members in starting a business, you just have to choose from all the great family business ideas. There are many family business ideas that take little to no overhead to get off the ground and running.

When starting a low-overhead small business with your family, all you need is time and energy—and a great idea, of course. Check out these family business ideas for some inspiration.

>> MORE: Learn about family and friends business loans

Family business ideas with low overhead costs

These are just some of the great family business ideas out there. The important thing to remember when starting a business with your family is choosing something you all enjoy.

1. Child or elder care

One small business option to start with your family is a child or elder care business. One of the benefits of this type of family business is that you can provide care in your place of residence or in the residence of the person you’re taking care of. Not needing a place to operate your business other than your own home greatly lowers the cost of operations.

You can start this family business simply by advertising to the people you already know or on a caregiving website like Care.com. Offer to fill in here and there as a date-night babysitter or to simply help out an elderly neighbor. Once you’ve built credibility, you can advertise your services online or get your start through word-of-mouth advertising from one customer to the next.

How much do you need?

with Fundera by NerdWallet

We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

2. Errand service

If you’re in need of some extra cash, an easy way to help out those around you is to offer to run errands. Most people who work a traditional office job are short of time. If you have the time, they’re willing to pay for the service. Some ideas for errands you can run for others:

Grocery shopping

Meal planning

Dropping packages at the local post office

Wrapping presents at the holidays

Buying kids’ school supplies

You can use sites like Fiverr and TaskRabbit to advertise your services, which can be especially helpful when you’re first starting out.

3. College consulting

Most high school students (and their parents) are anxious about navigating the college admissions process. There are a lot of steps to take, from visiting schools, completing applications, writing essays, taking tests, and finding scholarships or loans. The entire process can be overwhelming for students and parents.

If you’ve sent a kid or two to college, or have recently been through the process yourself, it’s likely you have a good working knowledge of how the system works.

The best part about starting a family business within this realm is that each member of your family can pick a niche that they enjoy and focus on that. In other words, you don’t have to do it all yourself, but your business can offer a variety of services, which can help you stand out from the competition. If you have a good working knowledge of FAFSA and the financial aid process, you can be a big help to students applying for loans and scholarships. If someone else has experience in writing and editing, then they could focus on the niches of college entrance essays and resumes.

Referrals will play a big role in your college consulting business taking off, but when you’re first trying to find clients, consider advertising around your local schools and libraries.

4. Celebration boxes or baskets

If you and your family love to craft and need an outlet to feed your artistic flair, offer to create gift baskets or celebration boxes for friends and family to give to loved ones. This can be a home-based business, meaning there’s no need to rent a space for your business.

The possibilities are endless, but some celebration box ideas include:

Off-to-college box

Graduation box

Birthday box

New baby box

Wedding box

Anniversary basket

Proposal box

Housewarming box

Really, any of life's big moments can be celebrated with a curated box of goodies. Each box can be customized to the preferences of the buyer.

With a physical product such as a gift box, advertising on social media, especially Instagram and Pinterest, can help to grow your business quickly.

5. Retail arbitrage

If you’d prefer to run an online business with minimal interaction with people, there’s an option for you: retail arbitrage.

Retail arbitrage is the idea that you can buy a product from one place and re-sell that item for a higher price in a different marketplace. For example, you might watch the CraigsList free section in your city and pick up high-value, well-maintained items. You can then sell those items on Facebook Marketplace for a profit. You can also find the yard and estate sales in your area to see what resale pieces you can find.

Another ecommerce business idea that requires minimal work on your part is running a dropshipping business. In essence, you act as the middleman between the customer, who places an order on your website, and the supplier, who fulfills the order.

6. Tutoring

Some students need a little extra help to ensure that they’re excelling at their studies. While you will need the knowledge to be able to help students with their homework and preparation for tests, much of what you will need is patience and kindness. Some students just need an adult to sit with them while they go over the material multiple times.

If you can provide the space, patience, and time a student needs, this family business idea could be perfect for you. Learn more in our guide on how to start a tutoring business.

7. Cleaning or fix-it services

One of the best aspects of operating your own business is the fact that you’ll get to set your own hours, your schedule, and your rate. If your family is especially handy or good with their hands, you can start a cleaning or fix-it service.

There’s a lot of flexibility with these types of businesses because you can offer only the tasks you enjoy and not the ones you don’t. For example, some cleaning services offer to do laundry, others don’t. As a fix-it person, you only take on jobs that you know how to do or want to learn. If you prefer to work on nights or weekends, you can even look into corporate cleaning. These types of businesses are totally customizable.

However, with other members of your family in on this business venture with you, you’ll likely be able to offer more services and work more quickly, so you can take on more jobs than a one- or two-person operation could.

Learn more about how to start a cleaning business .

8. Pet sitting

If you love animals, what better way to spend your time than taking care of neighbors’ pets who need to be walked during the day or while they’re away on vacation? As side businesses go, this one can be a lot of fun.

If you’re in need of some extra cash and are looking to start a small business, pet sitting can be an easy way to fill your time, offer love to animals, give back to your community, and make a little money.

This type of business can be all-encompassing or simple, it’s up to you. Depending on your transportation and space, you could offer extra services like taking animals to the vet and for grooming or even hosting a dog daycare or boarding services at your home. If those offerings seem like more work than you want, keep it simple by just offering to stop by people’s homes and feed animals while they’re away on vacation. You make your business what you want it to be.

9. Mentoring or teaching

No matter what work you’ve done with your life so far, you’ve been acquiring knowledge. In all likelihood, there’s someone out there who would like to have that knowledge. You can offer to mentor people who are interested in learning the skills that you have. For a small cost, you help them learn what you already know and make sure they’re putting those skills to good use.

There are many different ways to offer mentoring services. You might meet with people one-on-one for coffee or you can keep it digital by starting a website, blog, ebook company, or podcast.

10. Property rental

While many of the businesses on this list require minimal to no overhead for getting started, this one will require either capital or resources to get started. If you own more than one property or have the resources to buy a second property, you can begin to rent your property to other people. This is a business endeavor that can be especially helpful to have family on board for, as additional people can help bring funds to the table, as well as help manage the property.

Once you have a property to rent, you might do this through long-term rentals with a traditional lease or you can set up a profile on Airbnb and pull in some extra cash by renting your property to vacationers. Depending on your location and the size of your property, this could be a very lucrative family business idea.

11. Gardening or lawn care

If you like to spend time outside or just love taking care of plants, consider starting a gardening or landscaping company. Many people love to have fresh vegetables in their garden and green, weed-free grass, but simply don’t have the time to maintain either.

While a lawn care business will require some equipment to get started, many people have their own gardening or lawn care materials that you can use while you’re still getting started.

12. Farmers market vendor

If you’re crafty, have a garden, or enjoy canning or baking, you have a big opportunity to sell your goods at farmers markets. Many people prefer to buy from local vendors and there’s a boom in farmers markets right now. No matter what you love to make, for a small fee, you can rent booth space at a farmers market and sell your wares.

Plus, farmers market customers love a good business story, and what’s better than running a family-owned small business?

Tips for starting a family business

While many of the businesses on this list require minimal skill, business-knowledge, or startup capital, there are still a few things to be wary of when going into business with your family.

1. Set boundaries

You love your family, but they’re also likely the people who know just how to push your buttons. Boundaries between your personal life and work are especially important when you go into business with your family. Thanksgiving dinner is not the time to be talking about your profit and loss statement. Set those boundaries early so you can still enjoy family time away from the business.

2. Set clear roles

One healthy way to set boundaries within a family business is to ensure that each family member who works in the business has a unique role. When each person has a role that’s aligned with their skills, you’re all less likely to step on one another’s toes.

3. Create communication channels and expectations

Communication is a huge barrier to many small businesses. Without consistent communication, the business can fail. Set up expectations for when and what to communicate, what channels to communicate on, and who must be included for what types of communication.

4. Don’t play favorites

One of the difficulties of going into business with family members is the temptation to play favorites. Employees who are also family members shouldn’t be given special treatment in pay, scheduling, feedback, or promotions. A smart way to avoid an issue with favoritism is to not hire family members who are seeking employment from you as a last resort. Hire family members who are interested in the business and want to work there.

5. Make it official

If you’re hiring a family member in your business, make it as formal as if you were hiring any other employee. You should have a contract that stipulates compensation, duties, expectations, and anything else an employee needs to know. Writing things down and making formal agreements makes it less likely you’ll have a disagreement later on.

LLC Formation

The final word

While some people may recommend not starting a business with your family members because of potential disagreements and falling-outs, you would also miss the benefits and joy of working on a business with your family. If all small businesses avoided hiring family members, there would be a lot fewer small businesses in the world.

Deciding which family business idea is right for your particular family is the first order of business, but once you’ve all agreed on one and start taking steps to launch your business, you’ll also want to consider how to fund your family business.

This article originally appeared on JustBusiness, a subsidiary of NerdWallet.

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What It Takes To Run a Family Business An inherited business is not only about looking back at what is valued from a family point of view, but also about looking forward at what motivates families to continue to build on the legacy

By Shrabona Ghosh Aug 22, 2024

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

When it comes to family businesses, legacy is the connective tissue which binds the core purpose of the business – the values and achievements– accumulated across generations. The next gen of any legacy family business can make-or-break the heirloom. To ensure a smooth functioning of the business, it is imperative to have a transformative induction plan in advance coupled with role clarity, accountability trackers, quarterly dialogues, industry leader mentorship and external work experience.

"To truly nurture the next generation, we must plant the seeds of knowledge and passion early, allowing them to blossom into capable stewards of the legacy. They should be imparted the necessary skills to successfully integrate into the family business ecosystem. The current generation must be clear about the roles the next gen will play, whether they will be owner-managers, owner-strategists, or owner-investors, setting clear expectations and empowering them at the right time. Resources and capabilities should be gradually scaled-up in the system accordingly to support the next gen," said Dr. Tatwamasi Dixit, chairman at Family Business Research International Centre (FABRIC)

An inherited business is not only about looking back at what is valued from a family point of view, but also about looking forward at what motivates families to continue to build on that value through future generations. "There is no cookie cutter framework, as the process is unique to every family business and depends on family and business composition. However, if the next gen has different passion, it's equally important to support their individual paths while allowing them to continue as owner-investors in the family enterprise," the chairman said, explaining about the family value chain.

The next gen: not an easy inheritance

While sustaining the family legacy is a weighty obligation for younger generations, it is important for them to understand their responsibilities. The pragmatic nature of family business and its long-term prosperity are closely connected with the emotive underpinnings of the family's legacy. Decoding this emotional aspect, Dixit shared, "Often post the succession, there are multiple challenges surrounding the decision. The founders are often plagued by thoughts of losing identity & control, loss of power and centrality. Furthermore, the next gen also faces doubts of stakeholders as most have high trust and reputation on the founder and the previous generation. It is difficult for the next generation to enjoy that kind of trust from the beginning of the induction, it takes time."

Proving one's worth in a family business can be incredibly challenging due to the complex blend of personal and professional relationships. Unlike non-family enterprises, family businesses often have established expectations, legacy pressures and potential inherent biases. The younger generation usually finds it challenging to be heard and be accepted. "Deciding early on whether to join the family business can significantly aid in building a solid foundation. It is not a prerequisite for success, but it certainly helps. Gaining 2-3 years of external corporate experience is highly recommended, as it provides valuable insights and fresh perspectives. A deep understanding of the business's history, values, and strategic goals is vital in preparation. Building strong relationships and mutual professional respect with family members and employees fosters trust and collaboration," said Varun Puri, MD, Green Power International.

In an earlier conversation with Entrepreneur India, Amudha Ranganathan, director e-comm and special projects CavinKare India, had explained the scenarios involved in proving one's merit, "From a very young age, our parenting was full of values, ethics, insights into how business was approached, and guidance on what actions to take. CK Ranganathan, my father, laid the foundation for CavinKare and established a rigorous benchmark for us, this provided a strong grounding for us during the period. When you're a young child, you might not grasp the context, however, once you enter the workforce, periodically, you reflect on the guidance. We were able to distinctly resonate with how it relates to us, why it was said then, and how we should apply it in our business practices."

Effective communication is key to maintaining operational continuity and clarity, and one should not avoid difficult conversations with family members. Family business success requires professional competence, emotional intelligence, and a genuine commitment to the enterprise's long-term vision. Balancing these elements can help one discover their niche and contribute significantly to the business's growth and sustainability. To distinguish oneself, respecting the traditions set by senior generations while introducing innovative ideas is crucial.

Although there may be various points of views among different generations as to how to manage the business, there is one thing that remains constant: the desire to maintain and grow the business and the family's legacy. However, different working styles of the current generation and that of the previous one often come in conflict. "Sometimes the purpose of the previous gen and the next gen is not aligned. Lack of competence and a flamboyant attitude of the next gen with a consumer mindset instead of a contributor mindset, often leads to contention. With regards to values and purpose, they need to be on the same page to ensure growth."

Building trust amongst different shareholders

In Indian family businesses, building trust with these stakeholder groups: Family, customers, public (which includes financial partners/banks) and employees remains a cornerstone for thriving in the Indian family business landscape. Family firms are now readily accepting professionals on board, increased participation and involvement is encouraged across all levels.

Whenever, it comes to the connection between ownership and management, the coexistence should be harmonious, the management needs to embrace the pioneering and innovative spirit that the founding generation embodied. "The only way harmony will continue is if both parties are in an inclusive journey, it's called a parallel planning process (PPP). If there's a collaboration, there won't be conflict of interest. Promoters should not treat the professionals as servitor, they have to treat them as partners," Dixit said. The parallel planning process requires a commitment to have on-going conversations, to document decisions and to measure the alignment of goals.

According to PwC's 11th family Business Survey, dealing with conflict has never been easy for family businesses. It's part of an ongoing struggle many have with establishing strong family governance structures. The conflict resolution mechanisms to deal with family disputes was at 13 per cent globally and 19 per cent in India. Only 65 per cent of global and 63 per cent Indian family business leaders say that they have formal governance structures in place. This includes shareholder agreements, family constitutions and protocols, and even wills.

Explaining the potential benefit of an independent board director, adviser, or the council, Dixit said, "They bring in an unbiased view on table and provide a safe space. They can mediate and facilitate conversations and help in resolving deadlocks. It is important to have an independent person, who can either be inducted as a director or as an adviser or a facilitator. It's basically a trusted adviser whom everybody is ready to believe."

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Succession Planning in a Family Business: Benefits, Challenges, and Guiding Principles

The pandemic has made it clear that all family businesses should have a long-term succession plan, since circumstances can rapidly change in ways that are beyond the control of any family. While most family business leaders have an informal succession plan, only a fraction of them have documented the plan and effectively communicated it to all parties involved.

Sixty percent of U.S. respondents to PwC's 2021 Family Business Survey believe that family members increased their discussions concerning the business since the start of the pandemic. Still, the same survey shows that only 40 percent of the respondents believe the pandemic strengthened communications across generations of family members.

This is concerning since family businesses that have not yet started planning for succession can be susceptible to numerous risks—including broken relationships, a successor who does not have the knowledge and/or capability to lead, and reluctance from stakeholders. This planning should be done as early on as possible, though it is not too late to start now if your family business is more mature.

Benefits of Planning

Succession planning is key to achieving a long-term legacy in a family business by, among other things, defining when family members may work in the business, how profits should be distributed, who may serve on the board, how to plan for future leadership, and other matters such as taxes, liability, estate planning, ownership stakes, and voting rights. If a family business leader suddenly wants to leave the business or unexpectedly becomes incapacitated or passes away, the business needs to have the ability to remain stable during such unpredictable times.

There are several benefits to long-term succession planning. One is that your child or children will have the time to learn management tasks and you will be able to see how they perform. You will be able to mentor your child or children through the entire process and see if they are ready for the new role. Another benefit of succession planning is that it enables family members to make informed decisions about their futures within the company.

Although succession planning comes with many benefits, there are certain challenges that may arise. First, family business leaders must decide which child or children will be running the business and when in the future that will occur. This can be an emotional process and have repercussions for both the business and your family.

Another challenge is the diminishing interest of younger generations towards working in the family business. According to a 2016 survey by PwC cited by Forbes, of those anticipating an ownership change within five years, only about half plan to keep the business in the family—down from three-quarters just two years prior.

Guiding Principles

When it comes to succession planning in a family business, there are some important guiding principles that may be beneficial.

First, start as early as possible: planning well in advance allows plenty of time to mentor potential candidates and consider external talent that can be brought in and trained, if needed.

Second, articulate important family and business goals: everyone should feel heard, and a more beneficial outcome is likely by having an open conversation where family members can communicate easily and candidly with each other.

Third, clearly define the roles and rights of all stakeholders in the succession process. And finally, actively communicate the succession plan with all key members of the business.

Succession planning in family businesses is often a difficult and emotional process. Early planning will likely alleviate some of the stress that comes with the process, as well as give the family business a greater chance at generational survival.

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Succession Planning for Family Businesses

If you watch television or read the business pages, you already know that little or no succession planning at family businesses can lead to devastating consequences: back-stabbing, lawsuits, deteriorating business performance, and rancor and rifts within the family.

This guide shows how to prevent this from happening to your family and your business. Here’s what we’ll cover:

What is succession planning?

Why do family businesses need a succession plan, how do i create a succession plan, when should i start thinking about a succession plan, how do i pick a successor, what can go wrong during succession, how can i get ready to take over the business.

• How can I convince the older generation that it’s time for the next generation to take over?
• What if my family is complicated, with in-laws, divorced spouses and adopted children?

How does money fit into succession planning?

How can i make sure the next generation doesn’t screw things up, who can help me plan for succession and the leadership transition, what if my family doesn’t want to be part of the business.

Succession planning means carefully thinking through which next-gens will take over the company from the current leaders or founders, then developing a written plan that spells it out clearly.  Important things to think about:

• Who will take over?
• Do we want to transfer to someone outside the family?
• Should I work with a consultant?

These two articles provide a great overview of the general concept of succession planning and the steps involved:

For a cautionary tale, watch HBO’s “Succession,” or read the real-life adventures of Viacom and LVMH .  Everyday business families struggle with the same problems, and suffer from the same devastating results, as this seasoned veteran of family business consulting explains:

Consider also whether your next-gens need ownership competence training or some tough love to understand how to be better leaders

• Begin regular conversations about it.
• Separate ownership succession from leadership succession.
• Consider the financial, tax and inheritance implications.
• Focus on the family and business separately.

Have a plan in place well before you need it. You never know when a crisis will force a change in leadership.

Many people assume the first-born is the natural heir apparent, but this type of thinking is dangerous. Picking the wrong successor can doom future performance. These articles can help you consider all the angles.

The answer: Plenty!

Remember -- even the best-planned successions encounter turbulence.

Three perilous stages of family business transition – preparation, the transition itself, and the aftermath – must be handled the right way, or you might put your business at risk.

Learn as much as you can.

Assume that you don’t know everything and keep an open mind.

Above all, don’t step into the top role with an air of entitlement.

How can I convince the founder or older generation that it’s time for the next generation to take over?

You’ll need not only a solid plan, but also some gentle persuasion that recognizes their mixed emotions.

The older generation and the next-gens should work out their differences early.

What if my family is complicated – with in-laws, ex-spouses and adopted children?

Too many succession plans don’t consider the impact of complex families and subconsciously discount people who are not blood relatives. This can be a mistake.

Have a strategy that optimizes the fresh insights that non-blood family members can bring to the business, and discourages treating them as “outsiders.”

Prevent unfairness and conflict, and deal with it if it happens.

Professionalizing salary systems is critical, especially when you have relatives and non-relatives in similar roles.

Be aware of the pitfalls of wealth , which can often insulate next-gens from the toil it took to build your family firm and the harsher climate of the outside world.

Make sure you pass along your connections, values and family legacy as well as your material wealth when you do the handoff.

Family business advisories have seen and heard it all. They can help you cut through emotions and develop a sound and rational plan. They’ll also help you with other challenges. Here are two things to think about:

Women advisors can be especially useful and bring a totally different perspective to the process than men.

But first, you need to overcome the fallacy that all of your problems can be solved within the business or the family.

Children shouldn’t feel pressured to enter the family business. Sometimes a stint somewhere else can be the best option.

If you decide to end the family’s reign in the business, make sure your values transfer to the new owner, as Cadbury did when they sold to Kraft .

Want to know more about succession planning?

Visit here for our full collection of articles about family business succession.

More From Forbes

How to make family business succession successful.

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Nothing succeeds like success, the saying goes. But for family businesses, it’s smart succession planning that can be the key to sustaining the company in the future and keeping it flourishing. Problem is: few family business owners are doing a good job preparing to turn their enterprises over to the next generation.

“Succession planning is a difficult thing because it’s tied up with the hard-to-face fact that the owner is going to retire,” said Ritch Sorenson, Opus endowed chair in family business and academic director at University of St. Thomas in Minneapolis. “No matter how accomplished the children are, there may be questions about whether they can take over and run the business as well as the parents have done.” (The new website Familybusiness.org is an offshoot of the University of St. Thomas’ Entrepreneur and Innovation Exchange — eix.org. Full disclosure: The Schulze Foundation, which funds EIX, is also a funder of Next Avenue.)

Succession Planning: A 'Perennial Problem'

Succession planning “is a perennial problem for family businesses,” a 2017 report from PwC, called The Missing Middle: Bridging the Strategy Gap in U.S. Family Firms , said.

In fact, the 2016 Family Business Survey by the National Bureau of Economic Research Family Business Alliance found that 43% of family-owned businesses don’t have a succession plan. Yet roughly three quarters of the enterprises plan to pass ownership to the next generation.

“Generally, most family business owners find themselves so involved in the day-to-day operations, they’re not thinking of what’s next for them personally or for their family and how that intersects with the business,” said David Neubert, managing director of SunTrust Business Transition Advisory Group.

The Irony for Family Business Owners

It’s ironic, notes Joe Fahey, PNC director of business succession planning, “that the things that make these owners successful — vision, communication and execution — are things they need some coaching on to apply those skills for the family’s strategic plan and vision.”

Without proper succession planning, the business and the family can wind up having heated disagreements and legal tangles— sometimes played out in the local media. “The worst case scenario is the future owners become embroiled in a conflict that escalates publicly,” said Sorenson. Added Fahey: “The only winners from fighting are lawyers and the IRS.”

Start Succession Planning Early

If you’re a family business owner expecting that one or more of your children will take over the venture at some point, the earlier you can start planning for that transition, the better.

“The rule of thumb we have found is that you need at least ten years to plan for succession,” said Sorenson. “There are a lot of things you have to work through.” They include estate planning, taxes, liability, ownership stakes and voting rights.

Long-term succession planning can give your child or children time to learn the management tasks and for you to see how well they’re executed. Fahey said you might tell your child: “I will set up a board of advisers that I will be on and we’ll see how you do. You’ll have nonvoting shares, and to the extent you can prove you can run the company well, when you pay off the nonvoting shares, you can then buy the voting shares.”

The longer the succession planning process, said Neubert, “the better your chance to mentor [your child or children] and bring them along to see if they can step up.”

Which Child or Children Will Take Over?

The most important thing to work through, of course, is determining which child or children will run the business and when that will happen. Those decisions can be fraught for families.

“It can be emotional,” said Neubert. “It has implications for the business itself, financially, and impacts the legacy of not only what you want the business to look like over the long term, but how it intersects with your family and the community.”

Some owners mistakenly assume a specific child can take over the business when the reality is the son or daughter lacks the appropriate experience and expertise. “That can be a disaster,” said Sorenson.

Diminishing Interest by Younger Generations

One challenge is that fewer members of the younger generation these days are interested in working in the family business, let alone ultimately running it. Just half of the family firms PwC surveyed said that successors to key roles will be family members.

According to PwC’s 2016 survey of family businesses, of those expecting to change ownership in the next five years, only 52% of them plan to keep the ventures in the family, down from 74% in its 2014 survey and the lowest number since 2010. Of the family businesses expecting to change ownership more than five years in the future, just 69% plan to keep the companies in the family, compared with 79% in the previous survey.

Working With a Family Business Adviser

Assuming one or more of your children are interested in owning and running your family business, you’ll likely want to work with a family business adviser to help make the succession smooth.

“We encourage clients to let advisers help with strategic positioning and shine a light down the road,” said Fahey.

The adviser can objectively discuss with you the pros and cons of handing over the reins to one or more of your children versus bringing in an outsider to run the company — so-called “hired gun” management.

A family business adviser can also be especially helpful in working with you to draw up necessary succession documents. Just 23% of family firms have a “robust, documented plan,” according to PwC.

“The vast majority of family business owners have no clue that there are well-established governance processes to help prepare for succession or how to find them,” said Sorenson. “But there are numerous books and lots of consultants who can help.”

Sorenson recommends preparing two kinds of documents: a charter ownership (with agreements on what it means to be the owner of the business) and a constitution. You’ll want to do this with help from lawyers and often insurance agents, noted Sorenson.

Letting the New Owner Take Over

Once you do hand over the company to your child or children, allow your new owner or owners to run the show.

“The senior generation needs to let the next generation make some mistakes and learn from them and do things differently,” said Neubert. “Sometimes, that’s challenging.”

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Family Business Articles Family Business Succession: 15 Guidelines

Family Business Succession: 15 Guidelines

By John L. Ward , Stephen L. McClure

Succession is the most painful and critical time for family businesses. Less than one-third of family businesses survive into the second generation, and only about 13 percent make it into the third generation.

How do the successful ones make it? After working with hundreds of family businesses, we’d like to offer 15 guidelines that we hope will help you during the succession process.

1. Succession is a process not an event Rather than thinking of succession as an event that happens on a designated day, consider thinking of it as a process that occurs over a long period of time. Parents should begin to lay the groundwork for succession while their children are still small. How? By the way in which they talk about the business at home.

As the classic story goes, the business owner comes home from a typical day at the shop and complains that three key people quit, a customer didn’t pay his bill, the suppliers sent the wrong order again, and the bank is threatening to jerk the loan. Then, he turns to his son or daughter and says, Someday, this will all be yours.

Of course the truth of the matter is that most people who are in business for themselves love it, or they wouldn’t be doing it. However, the tendency is to talk more about the bad events than the good ones. But making a conscious effort to present a balanced perspective on the family business can help the next generation gain a better understanding and appreciation for the business.

2. Present the business as an option not an obligation Many, many parents hope that their children will want to follow in their footsteps and join the family business. But some fall into the trap of overselling the need to follow the family tradition. Others never bring up the subject because they don’t want to pressure their children. The key is to present it as an opportunity, not as an obligation.

How? We encourage parents to tell 15- or 16-year-old children, Whatever you choose to do with your life, we will support and encourage you. It’s probably too soon for you to know now what you want to do. If you should become interested in the family business, you will be very welcome. We have found it to be very rewarding and very fulfilling, but it’s clearly not the easiest way to live or the only way to live. It’s one of your many options and we will support and encourage you no matter what you decide.

That’s a conversation that rarely, if ever, takes place in a family business. But we think it’s very important to extend a non-conditional offer of support during the child’s high school years because it is very healthy for the son or daughter to think in terms of options.

Speaking of sons and daughters, beware of making assumptions on the basis of your children’s gender. In terms of interest and capabilities, both sons and daughters can contribute to your firm’s success.

3. Get outside experience Of the hundreds and hundreds of family business successors we’ve interviewed, all who have had outside experience said that they recommend it highly.

Why should your child work for someone else after finishing school? There are many good reasons why outside work experience is an advantage. Your sons or daughters can build their own identity, get outside knowledge, increase their self-confidence, bring back knowledge to the business, grow up a little bit, make mistakes on someone else’s time, find out what it is like to look for a job, discover what their market value is and learn how to take criticism. But the best reason is that this is how they will learn that the grass isn’t greener on the other side of the fence. They will learn that there is no such thing as a perfect boss or a perfect business.

If we can make only one recommendation to young people, it is to work for someone else for three to five years.

But what if that isn’t possible? What if the daughter is 32 years old and is now vice-president of marketing? Or, what if the business is small and they need a family member on sweat equity just to survive?

Then we try to find out other ways for that son or daughter to get the same sense of reality and outside perspective. Sometimes that means getting involved with their trade association or with other sons or daughters of another family business or with a community service group.

For many parents, however, it’s hard to believe that their children will want to come back, after working somewhere else. But the odds are better than two to one that they will come back, because magnetism to the family business generally increases with age.

4. Hire into an existing job It’s very important to hire your son or daughter into an existing, meaningful, defined job. Why? You will know how much to pay and what to expect. The rest of your staff will know how your child fits into the office hierarchy and how to treat him or her.

Often family businesses hire their children into ill-defined jobs and say, Because you’re family, you can do anything that needs to be done around here. We wear a lot of hats and now you do, too. But then you open the door to resentment on the part of the rest of the staff. Sometimes, employees doubt that the second generation is qualified to lead the company. Don’t set your son or daughter up for failure by giving him or her an overwhelming but undefined job. Instead, create a situation where progress can be measured.

5. Encourage the development of complementary skills After the next generation has entered the business, encourage the development of skills that are complementary to your own. Why? Your own skills are probably well ingrained into the business by now. If the parents are super salespeople, then the children are going to need to bring some operations or information system skills to the business. If the parent generation adhered to the philosophy of make it and invent it, then the next generation is probably going to have to know what the terms market segmentation and break-even analysis mean.

Is it easy to accept the fact that your child can improve or add to your business? No. You have to be a very secure person to be open to this type of action from your own child. But consider the alternative: would your business be better off having a second generation who brings nothing and can only try to duplicate everything you have done?

There is a cartoon that shows a son saying, Dad, sales are up 200 percent, production costs are down, and we’re on the cover of Business Week. The father says, Yes, and your shoelace is untied. It’s hard to recognize and praise our children’s professional achievements.

6. Teach the foundations One of the most valuable things the parent generation can give the next generation is an understanding of the historical, cultural and strategic foundations of the business. It’s very useful for the children to be aware of the firm’s underpinnings of the underlying principles that hold the enterprise together.

Even though you, the business founder, have lived the business, you may not be able to take a step back and identify your strategies. You may be too close to it all. If that is the case, let your child learn from a key employee who is able to explain why you do the things you do, as well as how you do the things you do. For example, instead of just showing your son or daughter how to treat your customers, the key employee will explain how the customer service policy evolved and what advantages the current policy has.

7. Start with mentors We always recommend that when the children enter the business, they should work for a mentor rather than with the parent.

The mentor should be the most valuable, loyal, secure, and long-lasting employee. That person should be your alter ego, the one who does all of the things that you don’t like to do.

When you set this arrangement up, you should have a conversation with the mentor that goes something like this: I would like Karen to work with you because she can learn a lot from you. But I know what will happen in three to five years. You two will clash. It won’t be anybody’s fault it’s just inevitable that she will want to do something on her own. The moment that happens, the mentoring relationship will end, and I will move her into the next step of the plan that I have in mind for her. It’s very important to clarify all of this and set it up right from the start.

We would like to add a word of caution here. Even if you have always made it clear that you intend to keep your business in the family, you may have an employee who believes that he or she is better and more qualified and rightfully deserves the opportunity to lead the company. Could it be that the employee may attempt to undermine your successor’s efforts? Be aware that this possibility exists. Be clear, keep your eyes open, and don’t let an unpleasant situation build up. You may have to offer the employee two options: recognize the successor’s role, or leave the company.

8. Designate an area of responsibility What is the next step of your plan? Give your son or daughter his or her own area of responsibility. It should be well defined. It could be a certain department. It could be handling the advertising. It could be managing personnel. As your child gains in experience and competency, increase the number of areas of responsibility. By giving pieces of the business, you will be working toward a smooth succession.

The model that we encourage you to have in mind when you think about succession is the track relay race. One runner has the baton, and the other runner has to catch up, take the baton, and continue the race. Your business will pass to the next generation much more smoothly if that second generation is running at full speed right next to you. It should be an exchange that is almost imperceptible.

9. Develop a rationale I’ve just described the ideal transfer. But what if somebody breaks stride or stumbles? Lots of things could happen.

As a matter of fact, the transfer zone is usually a very painful period. The parent may go through a grieving period as he or she says goodbye to the business. But the son or daughter has pain also. He or she may have the most pain.

Maybe there is a disagreement over money. Maybe it is over power. Maybe the founder is not entirely convinced that the successor is ready. How do you make it through this period?

You, the founder, and the successor could both benefit from forming a rationale or a statement that says why all this is worth it to you. When things are particularly painful and you are wondering why you are going through this, you can tell yourself, It’s difficult now, but it’s worth it because For example, after thinking things through, you may conclude, It’s worth it because we employ a lot of people, and I’m proud to be part of this business. Sorting out your feelings will help you though this difficult time.

10. Recognize that you are not alone We have found that it often helps families to know that they are not alone. All families face the same difficult issues such as How should we value the business? and Should the founder keep a title like Chairman of the Board? Somehow, it helps to know that these issues are difficult for everyone who tries to settle them.

It can also help to know that the way in which family members respond to the issues is fairly predictable. In many cases, mothers are overprotective, and fathers think they are invincible. Rather than blaming your oldest son for being too hard driving and too achievement oriented, consider the fact that almost all first born children are like that. Rather than blaming your youngest child for not taking the business seriously, consider the fact that the baby of the family almost never takes anything too seriously.

Rather than thinking that your family members have personality problems, recognize that it is very natural for the people involved to feel the way they do.

Because conflicts are universal, you can learn from other people who have gone through them. That’s why we generally recommend joining family-business forums or support groups. Not only will you be able to see how other people resolve their problems, you will also see that you may not be as bad off as you had previously thought. There is almost always someone who is in a worse situation.

11. Have family meetings Of course, good communication among your own family members is essential. Sometimes productive communication occurs spontaneously, and sometimes you need to plan for it.

At a family meeting, the whole family gets together to discuss an important matter. Sometimes it is best to hold these meetings at an outside neutral location, such as a resort or a restaurant; sometimes it is best to sit around the kitchen table.

How do you begin? You may wish to start by selecting a topic and moderator. We usually recommend, however, that you keep things informal and relaxed so that everyone can participate comfortably.

The benefits of these meetings typically include a greater feeling of unity (or team building), a clearer understanding of the issues, and a better understanding of the family’s range of perspectives.

12. Plan, plan, plan Long before the succession should take place, we encourage the founder to write a business plan, an estate plan and a succession plan all at once. We always know that we’re asking for the near-impossible, but we do it anyway because it works. You need to write these plans at the same time because they influence each other.

This is not, however, a do-it-yourself project. Help from your accountant, your attorney, and someone who has knowledge of organizational development is critical. Your job is to bring these experts together and develop the plans that can guide you through the succession period.

We’re not going to tell you that it will be easy. We’re not going to tell you that you will be able to do it quickly. But the long-range benefits of this approach cannot be overstated.

13. Create an advisory board We recommend advisory boards to all small businesses. Why? They are an extremely valuable sustaining resource. The board should include the type of people mentioned above (lawyer, accountant, and organizational specialist) and at least one other person from your industry whom you respect. Often, the business owner will offer the board members an honorarium instead of a salary. If liability issues are a concern, you can call the board a council. In any case, you will benefit from group discussions of important issues.

14. Set a date As you go through the planning process you will be able to determine a realistic and financially advisable termination date. When your plans are concluded, you should know exactly when the leadership evolution process will be complete and you should be ready to hand your business over to the next generation. It is essential that you are fully committed to that date, that your staff is aware of the plan, and that your successor can depend on you to follow through with it.

We have emphasized many times that succession is a process. Choosing a retirement date, preparing your successor, preparing your business for transition, and preparing yourself for a different sort of life are all important components of that process.

15. Let go Why do so many founders at the end of the transition process say, Well, I was wrong. We are not going to be able to complete the transition this year after all? Or, even worse, why do so many decide that they want to come back to the business two or three years after they left if for good?

It is hard to let go of responsibility. It is hard to let go of authority. But it is even harder to let go of control.

A psychiatrist can give you a lot of explanations about why this is true. Letting go is a very complex and difficult process that should not be underestimated. We’re sure you know many business founders who are in their 60s who do not want to leave the business because they are afraid of giving up their identity, they don’t know what they’re going to do with their time, and they know three people who died the day after they retired.

But we would like to offer an additional explanation for why letting go can be difficult for entrepreneurs. If you are tied financially to the business, it will be almost impossible for you to let go of it.

One of the central goals that you should have while writing your business plan, estate plan and succession plan is to create financial security that has no ties to the business. You need to be financially independent. And if you aren’t, you won’t be able to resist the temptation of interfering with the business.

Conclusion Perpetuating a family business is the ultimate management challenge. We’re convinced, however, that you can increase your chances for success if you believe that succession is a process that may take fifteen or twenty years to complete. Fortunately, there has recently been a sharp increase in the number of resources (books, journals, support groups, and conferences) that have been developed to help you. We hope that you will take advantage of the support, plan ahead, be candid with your family and staff, and successfully transfer your business to the next generation. Good luck!

Articles purchased or downloaded from The Family Business Consulting Group® are designed to provide general information and are not intended to provide specific legal, accounting, tax or other professional advice. Since your individual situation may present special circumstances or complexities not addressed in this article and laws and regulations may change, you should consult your professional advisors for assistance with respect to any matter discussed in this article. The Family Business Consulting Group®, its editors and contributors shall have no responsibility for any actions or inactions made in reliance upon information contained in this article. Articles are based on experience on real family businesses. However, names and other identifying characteristics may be changed to protect privacy.

The copyright on this article is held by The Family Business Consulting Group®. All rights reserved. Articles may be available for reprint with permission. To learn more about using articles for your publication, contact [email protected] .

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12 Tips for Running a Family-Owned Business

11 Min Read | May 24, 2024

Family-owned businesses are the backbone of America. In fact, 60% of the U.S. workforce is employed by family-owned businesses (ranging from two people to thousands). 1

Whether you grew up washing dishes at your family’s restaurant or recently decided to join your family’s accounting firm, going into business with family can be incredibly rewarding and incredibly difficult. So hang with us. We’ll show you how to navigate the potential pitfalls of running a family business.

What Is a Family-Owned Business?

A family-owned business is a business owned and operated by two or more family members. Many family businesses (about 1.2 million in the U.S.) are run by a husband and wife. 2 Most family-owned businesses are small, but even some giant companies are family-owned. The Cathy family has owned and operated Chick-fil-A for 70 years. 3

Family-owned businesses have been around for thousands of years. A farm is one of the earliest examples of a family-run business. Dad, mom and their half a dozen kids raised crops and tended the animals. If dad and mom wanted more farmhands, they had more kids!

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Starting a Family-Run Business

Depending on your circumstances, deciding to go into business with your family can be a tough decision. As a parent, you might dream of working with your kids and building a legacy for your grandkids. But if you’re the child or family member, it can be tricky to navigate—especially if you’re not interested in the family business. And depending on your personality, you might love that your career is already waiting for you . . . or you might dread it because you’ve been around the business your whole life.

A family business is only as functional as the family that runs it—and lots of families are dysfunctional these days. So how do you steer clear of crazy and build a strong business and family tree? Let’s look at some valuable tips from someone who’s learned on the front lines.

12 Tips for Going Into Business With Family—Successfully

Money expert Dave Ramsey, CEO of Ramsey Solutions, started his business on a card table in his living room—right after declaring bankruptcy. When he was scraping his way through those early days and late nights of getting the business running, he wasn’t thinking about succession plans—yet.

Related article:   EntreLeadership: What Are the 5 Stages of Business?

But 30 years later, all three of his adult children work for his company! And when it comes to getting family involved, he’s learned a thing or two that could benefit you too if you’re part of a family business. So here are Dave’s 12 tips for going into business with family.

1. Communicate openly and often.

Open communication is key to a successful family business (not to mention many other areas of your life). But it’s not just one-way communication either. It has to be a two-way street.

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For example: If your daughter has been working for you her whole life assuming she’s going to take over the business one day, you need to have a heart-to-heart with her to make sure she knows your plans. You might want to pass it off to her, but you might want to sell. In either case, it’s better she knows now. To be unclear is to be unkind. The best thing you can do for your family and the business is to be open and honest, no matter how tough it might be.

Each person involved has to do their part, and that includes communicating their motives and hopes for the future of the business—including their future at the business.

Beyond that, you have to give family members space to speak honestly and openly about how the business is run. When Dave formed the Operating Board for Ramsey Solutions, he made sure his kids had seats in the room. At first, they were just there to listen and be aware and learn. Now they speak into the running of the business like any board member.

Related article: How to Communicate Effectively

2. Steer clear of partnerships.

You may think starting a lawn care business with your brother is the dream job you’ve always wanted. That’s great! But think about the business in the long term. What happens if you two get in a fight and things get messy? Or what if he wants to let his deadbeat nephew take over his part of the business when he retires?

There’s so much that can (and will) go wrong. Sure, it might be butterflies and blue skies now, but the best bet you have when it comes to doing business with family members is to either have them work for you or vice versa. Then you get to work together and share in the profits—the best of both worlds.

3. Set clear boundaries.

Setting clear boundaries between family life and your business is super important—especially if you want to run a successful business and still have a family to come home to. If you’re at work, keep your family issues at home. And if you’re at home, don’t talk about work. After you flip the sign in the window to “closed,” take off your boss or employee hat and just be family. You shouldn’t have the same conversations at the dinner table that you have at the board room table.

When you own your own business, it’s your baby. Its success is your success. But don’t fall into the trap of letting your business consume every waking hour of your (and your family’s) life.

4. Have a succession plan.

Have you thought about what will happen to the business when you’re gone or retire? Or who you want to take over the family business when the next generation is ready to hand over the reins? If not, you need to start thinking about a succession plan and who will continue your legacy into the next generation.

A good succession plan is gradual. If you want your kids to take over your company, train and mentor them and gradually give them more and more responsibility until they’re ready to lead. When it’s time for you to pass the leadership baton to your kids, the handoff will barely be noticeable. And like we said earlier, make sure your family members know your intentions.

5. Define roles and job descriptions.

Sometimes the lines between family and business get murky. So how do you navigate those dark waters? With clearly defined roles, written job descriptions (that means yours too), and specific expectations. Just as you would with any other role, you need to work out every possible detail of your family member’s role before you go into business together.

Sure, you won’t have it all figured out, but the beginning of a plan is better than no plan at all. If you have a clearly defined plan and know who’s going to do what, you’ll spend less time worried about who gets the corner office and more time serving your customers.

6. Get outside advice—often.

Successful businesses seek advice from outside advisors. Maybe you need help seeing your blind spots, setting goals, or working through tough relationship issues. No matter what the problem is, someone else has been through it before. Learn from their experience so you can grow and reach that next level of success. 

7. Create a vision and culture.

Having a vision for your company and working toward goals will keep your business growing in the right direction. No one wants to set sail on a ship to nowhere. And this is true for all businesses—not just family ones. And when you cast this vision to your employees (family or not), you’ll have something you can all rally behind. Creating a vision that you and your company believe in will help define your company culture .

When you and your team are on a mission together, your team will feel like they are part of something bigger than themselves. Sit down with them often in staff meetings or outings and create a workplace you all will be proud of.  Remind them why your company’s work matters. Take time to share stories about the impact you’re having. And make sure they understand that they all play a role in creating a workplace they can be proud of

Related article: How to Write a Company Mission Statement

8. Treat everyone fairly.

If you’ve hired both family and non-family team members to work at your company, treat everyone fairly. If your culture favors family, it will be impossible for your team to feel like a team. And that will keep you from making progress toward your big, hairy, audacious goals.

Related article: What Is a BHAG (Big, Hairy, Audacious Goal)?

Instead, create a company culture of respect and professionalism. Don’t treat team members like children (even if they are your kids). And your kids should respect your position as a leader. After all, most of us wouldn’t talk to our boss the same way we would talk to our mom or dad at home—and expect to stay employed. Keep things professional at work.

9. Put on the professional hat.

It will be easier to set boundaries and keep things professional at work if you think of your business role and your family role as hats you put on and take off. At work, you wear your “leader” hat or your “team member” hat. At work, Dave Ramsey’s kids call him “Dave.” It’s a signal their relationship is in business mode. (And think about it: Who will take you seriously if you’re calling the CEO “Dad” all the time?) Away from the office, they call him Dad—everyone gets to take off their professional hats and just be family.

10. Make sure family members earn their keep.

If you went out on a limb to hire your nephew, make sure he actually does the work—and does it to the best of his ability. Don’t let him coast on the fact that he’s your favorite nephew. Nope, he’s going to have to work hard to prove he’s the guy for the job.

The truth is, other team members will judge the work of family members more harshly. They’ll have to go the extra mile to prove they’re qualified for their job and don’t just have their position because of their last name.

Dave’s son, Daniel Ramsey, has worn all kinds of hats over the years. He spent one summer painting stairwells. And he had several sales roles in the company to build his experience before moving up to a leadership position.

11. Find the right place for family members.

Everyone has different skills and talents. Some people prefer leading people, while others prefer support roles in the background. Just as you would with any other team member, you need to find the right role for your family member that matches their skills and talents. Don’t assume that even though you’re a hard-charging CEO, your creative son will want to step in your shoes.

And sometimes, the right place for a family member is at another company. Don’t pressure your children—or any relative—to join the family business. Let them make their own decision. They need to feel called to work in the family business.

12. Remember your why .

To work with family and run a business, you have to remember why you’re doing it in the first place—especially when things get stressful, money gets tight, or relationships get tense. Why did you decide to go into business for yourself? Did you like the idea of being your own boss? Did you always want to be an entrepreneur? Is building a family legacy important to you? Know your why , and remind yourself of it during tough times.

And make sure your family members know your why . Help them find their place and decide if they actually like the business and can see themselves working there for the long haul. If they’re only in the family business because it was expected of them, that’s not going to get them very far.

Related article : 7 Tips for How to Run a Business Debt-Free

Never Forget You're Family

If done right, running a family business can be very rewarding. A business can create a lasting legacy for your family and strengthen the bonds of love and loyalty between family members. But a business can also ruin family relationships if some guidelines and boundaries aren't established from the get-go. Just make sure that expectations are clear, communication is constant, and boundaries are set between family life and business life.

And never forget that you're all family and on the same mission together.

• Get your family on the same page by crafting a mission statement for your family business with our Mission Statement Mapper .
• Listen to or watch The EntreLeadership Podcast for more great business insights from Dave Ramsey himself.
• Sign up for EntreLeadership Elite  to access video trainings, reporting tools and a full library of exclusive video courses on topics like role clarity, strategic planning and succession plans.

EntreLeadership Elite is the best way to access all the tools and training Dave and the EntreLeadership Team have developed through decades of coaching business leaders—including those running family-owned businesses—to crush their goals.

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About the author

EntreLeadership

EntreLeadership is the part of Ramsey Solutions that exists to help small-business owners thrive by mastering themselves, rallying their teams, and imposing their will on the marketplace. Thousands of leaders use our proven EntreLeadership System and resources to develop as leaders and grow their businesses. These resources include The EntreLeadership Podcast , EntreLeadership Elite digital membership , books, live events, coaching sessions and business workshops. Learn More.

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What We Know About Kamala Harris’s $5 Trillion Tax Plan So Far

The vice president supports the tax increases proposed by the Biden White House, according to her campaign.

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By Andrew Duehren

Reporting from Washington

In a campaign otherwise light on policy specifics, Vice President Kamala Harris this week quietly rolled out her most detailed, far-ranging proposal yet: nearly $5 trillion in tax increases over a decade.

That’s how much more revenue the federal government would raise if it adopted a number of tax increases that President Biden proposed in the spring . Ms. Harris’s campaign said this week that she supported those tax hikes, which were thoroughly laid out in the most recent federal budget plan prepared by the Biden administration.

No one making less than $400,000 a year would see their taxes go up under the plan. Instead, Ms. Harris is seeking to significantly raise taxes on the wealthiest Americans and large corporations. Congress has previously rejected many of these tax ideas, even when Democrats controlled both chambers.

While tax policy is right now a subplot in a turbulent presidential campaign, it will be a primary policy issue in Washington next year. The next president will have to work with Congress to address the tax cuts Donald J. Trump signed into law in 2017. Many of those tax cuts expire after 2025, meaning millions of Americans will see their taxes go up if lawmakers don’t reach a deal next year.

Here’s an overview of what we now know — and still don’t know — about the Democratic nominee’s views on taxes.

Higher taxes on corporations

The most recent White House budget includes several proposals that would raise taxes on large corporations . Chief among them is raising the corporate tax rate to 28 percent from 21 percent, a step that the Treasury Department estimated could bring in $1.3 trillion in revenue over the next 10 years.

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• Definition and characteristics
• Pros and cons

Townhouse ownership and costs

Who should consider buying a townhouse, what is a townhouse understanding this unique housing option.

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• A townhouse is a type of home that shares at least one wall with an adjacent dwelling.
• Townhouses can provide both the amenities of city living and the privacy of owning a single-family home.
• But they aren't a good fit for everyone. If you need more space or want to avoid an HOA, you might prefer a different type of home.

A townhouse can offer the best of both worlds when living in an urban environment — you get the proximity to the city and all its amenities, plus the freedom and space that comes with owning a single-family home. 

But buying a townhouse can mean different things depending on where you live and the community you're thinking about buying in. Let's take a closer look at what exactly a townhouse is and who this type of home could be a good fit for.

Definition and characteristics of a townhouse

What makes a townhouse unique.

The term "townhouse" can be used to describe a variety of different property types and styles. But its main distinguishing feature is that it's a home that shares at least one wall with an adjacent home.

Common architectural features of townhouses

Townhouses often have multiple stories and can be tall but narrow. They may have a small backyard. In big cities with high population density, townhouses are typically built in rows along the city's streets, with homeowners sharing a wall on both sides of their homes.

You can find townhouses in suburban areas, too, but they often look a little different. Where population density is lower, properties labeled "townhouses" may share a wall with just one other home and may only be one or two stories high. They often also have bigger yards and larger footprints compared to the townhouses you'll find in cities.

Differences between townhouses, condos, and single-family homes

Townhouses are often single-family homes, though in some cases, they can be condos. Confused? Let's define some things to clarify.

A single-family home is a dwelling that houses one family or household and has its own utilities and HVAC systems. Though the term "single-family home" is often used to refer to detached houses that stand alone, a townhouse is considered a single-family home as long as it's separated from adjacent units with a ground-to-roof wall, according to the U.S. Census Bureau .

Condos can come in many different forms, since "condominium" actually refers to a type of ownership. With condos, you only own the interior walls of your unit and everything within those walls. Everything else is co-owned by all the owners within the condo association. So, it's possible for a townhouse to be set up as a condo.

Townhouse HOAs

Many townhouses are part of homeowners associations, or HOAs. In neighborhoods that are governed by HOAs, homeowners have to pay a regular fee that covers the maintenance and repair of common areas. They also often have rules that the homeowners within the HOA have to follow, such as what types of changes can be made to the exterior of your home or how tall your grass can be.

Pros and cons of living in a townhouse

Advantages of living in a townhouse.

Owning a townhouse may be more achievable for first-time homebuyers compared to a detached home. Because townhouses typically have smaller footprints, they can be more affordable (though if you're buying in a major city in a sought-after neighborhood, you can expect townhouses to command top dollar). A smaller townhouse can also be easier for new homeowners when it comes to maintenance, especially if the HOA takes care of some of the exterior upkeep.

If you're looking for city living but want a little more of your own space, a townhouse could be a better fit compared to an apartment-style condo or co-op.

"People who value their privacy love townhouses," says Guy Hobson, a real estate agent with Coldwell Banker Warburg . "They come and go without the eyes of building staff and neighbors. The private garden comes in handy as a place to be outside without having to leave your property."

Potential drawbacks of owning a townhouse

"Townhouses are typically multiple floors and don't always have an elevator, so it is lots of up and down stairs," says Hobson. If climbing stairs every day isn't for you, a townhouse might not be the best fit.

Hobson also notes that these homes can be "natural light challenged" since they tend to be relatively narrow, with no side windows. 

Because you're sharing at least one wall with your neighbors, townhouses can be somewhat noisy. If you're worried about overhearing your neighbors as they go about their daily business (or having them overhear you), you might prefer a detached dwelling.

You should also consider whether you want to live in a community with an HOA. Not everyone likes HOAs since they can be expensive, and some HOAs have strict rules dictating what members can and can't do with the homes they own.

Be sure to get any townhouse you're thinking about purchasing inspected, especially if it's an older home.

"Historic houses can sometimes have real, hidden issues that can be costly down the line if not spotted by the inspector," Hobson says.

Typical costs associated with owning a townhouse

Owning a townhome is similar to owning any other type of home. If you use a mortgage to purchase the property, you'll make a monthly mortgage payment . Your monthly payment amount will be determined by how much you borrow and your mortgage rate . 

You'll also pay property taxes and homeowners insurance premiums. If you have a mortgage, your lender will typically include those costs in your monthly payment.

Homeowners insurance on a townhouse may be slightly cheaper than insurance for a freestanding home, depending on the size of the townhouse and its building materials. If your townhouse is a condo, you may only need insurance for the inside of the home if the condo association's insurance covers the exterior. This could be more affordable than a standard insurance policy for a single-family home.

Homeowners association (HOA) fees

HOA fees vary quite a bit; some homeowners may pay just $100 a month, while high-end communities can charge more than $1,000 a month. You can't skip out on this fee, so make sure you can afford it before you buy in a neighborhood with an HOA.

Shared responsibilities with neighbors

If you own a townhouse, you may need to collaborate with your neighbors from time to time on certain repairs. This is particularly an issue when it comes to shared roofs.

If the townhouse roof needs to be repaired or replaced, it generally makes more sense to have the entire job completed at one time. But that means you'll need to work with your neighbors to agree on how to get the job done and how to share costs. 

A townhouse can be a good fit for lots of homebuyers, but townhouses near city centers can be a particularly good fit for young professionals and smaller households. Being near amenities and public transportation while also having your own backyard is one of the benefits of townhouses that you won't often get with other types of housing. 

If you have a larger family or a lot of kids, a city townhouse could feel cramped compared to a detached home. But families might like townhouse-style living in less dense areas of the city or the suburbs, where units may be more spacious and affordable. Retirees may also like living in these types of townhouse communities, particularly in ones where the HOA takes care of most of the maintenance. 

What is a townhouse FAQs

You can't compare townhouses and condos because they're two separate concepts. Townhouses are a type of dwelling, while a condo refers to how a property is owned. When you own a condo, you own your individual unit, and everything else, including the land the condos sit on, is typically shared by the owners within the condo association. So a townhouse can be a condo.

Townhouses can be cheaper than freestanding single-family homes since they're often smaller. But they aren't always cheaper, especially if you're comparing townhouses in the middle of major cities to single-family houses in a cheaper nearby suburb. 

Whether you own the land in a townhouse depends on how ownership is structured. If a townhouse is a condo, you might share ownership of the land with other owners in your condo association. But if it's a single-family home on its own parcel of land, you likely own the land your home sits on. 

Maintenance responsibilities in a townhouse depend on whether you have an HOA and what the HOA is responsible for. Often, townhouse owners are responsible for their own exterior and interior maintenance, though some HOAs may provide services like lawn mowing or snow shoveling.

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Does Your Family Business Have a Succession Plan?

• Nick Di Loreto
• Omar Romman

You can’t expect to just step into mom or dad’s shoes.

When a family business assumes that the next generation can simply take over where mom or dad left off without pausing to consider the CEO job description, governance, or the evolving business context, they may be setting themselves up to fail. Families have broken up, reputations have been lost, and businesses have collapsed because the generation in control did not consider how to set the next generation up for success. Just as a business must reinvent itself as markets shift, so must a business family reinvent (or at least thoughtfully revisit and refresh) its ownership and leadership model. Seek to understand the changing players and dynamics so that you have better context for what your business, family, and owners need in the future.

A day before his 35 th birthday, Hampton Berger*, a fourth-generation member of a successful family-owned manufacturing business, stood outside his father’s office, anxiously waiting to discuss his father’s succession plan. Hampton had spent his life “checking the boxes” that he hoped would position him to take over the family business someday: he obtained an MBA and received several promotions in his R&D role at a global car manufacturer before joining the family business.

• Nick Di Loreto is a partner at BanyanGlobal Family Business Advisors. He advises the owners of some of the world’s largest private family businesses and offices on how to navigate the challenges of generational transition.
• OR Omar Romman is a partner at BanyanGlobal Family Business Advisors.  He advises the owners of family businesses and family offices from around the world on owner strategy, governance, and generational transition.

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