SelfInformed

July 2014


Turning Your Small Business into a Family Business

Thursday, July 17, 2014



If you’re self-employed with a family, at some point you’re going to ask yourself the question: is my small business going to become the family business?

 

There are plenty of reasons to get your family involved in your small business. First, it helps your spouse and children understand exactly what is involved in starting a business and running it from the ground up. Second, it helps teach your children about the value of hard work and taking pride in a good job. Third, your spouse and your children are often your business’s most valuable assets!

However, if you want to turn your small business into a family business, you need to plan ahead. According to Forbes, only a third of all family businesses successfully pass their business down to the next generation.

This means you need to start thinking about getting your kids involved in the business from a very early age. You need to consider whether you want to hire your spouse as an employee or a business partner. You also need to think about the most
important part of running a family business: deciding when to retire and how to pass the business down to
the next generation.

Getting Kids Involved in Your Business

If you have young children, getting them involved in your small business early is a great way to teach them about the work that you do and about the value of hard work in and of itself. Consider it “Take Your Children
To Work Day,” writ large.

When kids are small, letting them play next to you as you work or giving them basic jobs like sorting change helps acclimatize them to your small business and show them that work can be fun.

When your kids get a bit older, the best way to involve them in your business is to put them to work — and the best way to put kids to work is to put them on the payroll.

Yes, paying your kids to work for you is a smart choice for both children and parents. The kids know that their work is valued and are more likely to be invested in their jobs. They also learn important life skills, including:

  • Punctuality
  • Task completion
  • Listening to and following directions
  • How to interact with coworkers and customers

You, meanwhile, get a tax break. Many parents don’t realize that when they put children under age 18 on the payroll, they don’t have to withhold income taxes or payroll taxes on their child’s income.

To quote Entrepreneur:

“Pay your children for services they perform for your business, and you’ll actually generate an expense for your income taxes by pushing income to your children.”

Talk to your CPA or tax adviser about how to put your children on the payroll, and then find age-appropriate jobs for them to do. Middle-school and high-school kids can easily work behind a counter, stock items, and vacuum floors. They can also update websites, keep your business’s Twitter account active, or do graphic design for flyers and signs. Make sure the jobs you create are legal — many states have restrictions about teenagers operating machinery, for example.

Hiring Your Spouse

Hiring your spouse is a good way to help your business grow. By working alongside the person who is probably already your best friend and most trusted team member, you have the chance to combine your strengths to support your small business as well as your marriage.

There are two ways to involve your spouse in your business: as an employee and as a partner. (Read the IRS’s rules to learn how to distinguish between the two.) Each of these roles comes with its own benefits and drawbacks. Some people choose to make their spouse an employee to offer them small business health insurance, for example. However, if you are planning to create a true family business, consider making your spouse a full partner. After all, the two of you equally share the responsibilities of marriage, homemaking and child rearing; it is important that you join this endeavor on an equal footing as well.

Succession Planning

Some types of small businesses, such as consulting or teaching piano lessons, are designed to only last for one generation. However, many small businesses, such as restaurants, landscaping services, dry cleaners, or retail, naturally include the question of succession.

Simply put: are your children going to take over the business someday?

Before you can answer that question, you need to take a serious look at your children’s interest in the family business. Some children naturally gravitate towards your business, even from a very young age. These are the kids who are eager to spend time with you as you manage the business, and who are happy to take on business-related tasks (even if they still balk at doing “chores”).

Even children who do not initially show an interest in your business may develop an interest over time. Don’t be surprised if your teenager chooses to pull away from the family business and explore his or her own interests. In time, the family business may start to look more attractive -- especially if you are able to give an adult child a career opportunity that isn’t otherwise available in a tough job market.

If you think you will pass your business down to your children, it is important to start thinking about succession planning early. Many small business owners think about succession planning only in terms of when they will retire -- not how to incorporate other family members’ needs and interests, which are equally valid. Your adult child may want to begin running the business before you want to enter a full retirement, for example. Your spouse may want to retire earlier or later than you do.

Forbes has a great article on questions you need to ask regarding succession planning, as well as how to create a plan that works for you and your family. Start there, and remember that the question of succession is never just your decision; it’s a family decision.

Generational Connections

Many small business owners dream of the day when they’ll be able to walk into the business they created and see their son or daughter greeting customers while their grandchildren run to get boxes from the storeroom. However, the future is hard to predict, and it probably won’t look like what you imagine.

The best way to connect your business to future generations is to involve them as soon as possible and to give them as much leeway as possible in shaping the business’s growth. Your children and grandchildren may greet customers and stock boxes, but they might also optimize your website for Google Glass or build the business app for the new generation of smartwatches. At  some point, you’ll have to let them teach you what your business needs.

Also: don’t forget about the generation above you. One of the best ways to help support your parents or in-laws as they bridge the gap between full-time employment and full-time retirement is to hire them to work at your business. (Hiring your parents also comes with its own set of tax benefits.)

Yes, it may feel strange being the “boss” of your mom or dad, but hiring your parents or other older relatives is a good way to help them stay active and connected with the community -- and, of course, to give them opportunities to spend more time with their family!

Don’t Forget to Disconnect From Work and Reconnect With Your Family

Here’s one important aspect of running a small business that many business owners forget: at some point, you have to disconnect from work and reconnect with your family. Being “Mom” or “Dad” is hard enough; being the parent who is also the employer/supervisor/boss is even harder. Combine that with the idea that running a small business is a 24/7 job, and you run the risk of creating an environment which may be good for your business but is bad for your family.

If your kids and your spouse currently work for the family business, ask yourself these questions:

  • How many nights a week do you eat together as a family?
  • Do you have at least one day and night a week to spend together that doesn’t involve working for the business?
  • Do your spouse and children have opportunities to take leadership roles in other areas of your family life, or are you always the boss?
  • Do each of you have opportunities to develop identities, interests, friends, and hobbies that are not related to the business? Do you have the time to take an interest in each other’s hobbies?
  • Do you feel like you have to turn down “typical” family experiences (vacations, school plays, slumber parties) in favor of the business?
If your family business feels like it is taking away from your ability to be a family, it’s time to step back. Maybe you need to hire additional employees who aren’t related to you. Maybe you need to close up shop one night a week, even if it cuts into your profit. Make time to step away from your workplace roles and enjoy being a family together. This work-life balance will make both your business and your family stronger, and will increase the possibility that your children will want to carry the family business into the next generation.

1 Comment

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