Running a business with someone you already know sounds great, especially with your own family. Especially if the business is run from generation to generation, it has usually been proven to be successful in surviving in the market, so it can be continued continuously to the next generation. However, this doesn’t mean that a family business is barrier-free. As a business owner, you will certainly still face various challenges. There are times when there are disagreements that eventually become the seeds of bigger problems. These problems will certainly be more severe because you are not only dealing with coworkers, but family members who have a closer relationship with you. Well, to avoid these unwanted things, it helps you to know what are the considerations before running a business with family. Not only to maintain good relationships, you can also apply this method to achieve business success. Check out the article until the end!
Examples of Successful Family Businesses in Indonesia
One example of a successful family business in Indonesia is Sampoerna. This cigarette company was originally started by Liem Seeng Tee, the son of a Chinese businessman who migrated to Indonesia. Liem Seeng Tee worked as a restaurant employee in Surabaya and then worked as a cigarette factory laborer in Lamongan. Furthermore, Liem Seeng Tee started a small cigarette business with his family. The family business officially became a business entity in 1913 and continues to grow rapidly today. Besides Sampoerna, another example of a successful family business in Indonesia is PT Djarum, which was pioneered by Oei Wie Gwan in 1951. This company owned by the Hartono family has become a large company. Even Budi Hartono, the successor of PT Djarum, was named by Forbes as the richest person in Indonesia.
Pros of Running a Business with Family
Before discussing further, you first need to know what are the advantages of running a business with family. Here are some of the advantages:
Strong Trust and Loyalty
Family relationships are generally based on strong trust and loyalty. This can lead to smoother and more reliable cooperation in running a business.
Ease of Communication
Communication is often easier in a family environment. You may feel more comfortable to speak frankly about business matters without fear of disrupting the relationship.
Shared Vision
Family members generally have shared values and visions that can make it easier to plan for the long term and run the business with a consistent focus.
Shared Ownership
Joint business ownership within the family can prevent the problem of split ownership that often occurs in non-family businesses.
Increased Employee Loyalty
Employees who work in a family business environment often feel more loyal and connected to the company because they feel part of the “family”.
Disadvantages of Running a Business with Family
Just like any other business, running a business with your family also has its drawbacks and risks, among others:
Difficulty separating personal and business interests
Separating personal and business interests can be difficult, leading to potential conflicts.
Objective Decision Making Difficulties
Objective business decisions may be difficult to make due to the emotional factors and family relationships involved. This can slow down decision-making.
Family Pressure
Unsuccessful businesses can create tension in family relationships, as the impact goes beyond just the business aspect.
Limited Skills and Experience
Family members may have limitations in terms of the skills and experience required to run a successful business.
Business Ownership Limitations
Joint business ownership can hinder business growth if all family members have to agree on key decisions.
Tips for Running a Business with Family
A family business is a business that is built, owned, managed and developed by family members. This family business is usually started by one person and then assisted by other family members and passed down to the next generation. If you are interested in building or continuing a family business, you need to understand the following strategies and tips:
Understanding Core Business
Whether you are just starting out or continuing an existing family business, it is very important to understand your core business. The core business is the main activity of the company that becomes the corridor in expanding the business. This is because many family businesses end up going out of business after changing administrators because the business successor makes changes that deviate far from the core business that has been built.
Defining Business Goals and Commitment to Achieve Them
The next tip for building a business with family is to set business goals and be strongly committed to achieving those goals. Yes, a business must have clear goals and concepts so that it does not easily collapse when facing problems. The reason is, over time, business dynamics will continue to present new opportunities and challenges. Therefore, the family business management should have a strong commitment to achieve the set goals.
What the Revenue Sharing System Looks Like
The next tip that is no less crucial is the profit sharing system. Will it be divided equally or according to the owner of the largest capital who will get the most share. Given the sensitive nature of money, it is best to discuss this carefully so as not to hurt either party. Think about the best way, don’t let the division be unfair because this can cause division.
Recruit Outsiders
Even though it’s a family business, you also need to recruit outsiders outside the family. Don’t just recruit people based on family relationships. That way, you also have the opportunity to get personnel who are more skilled in their fields than just recruiting their own family.
Set Limits
One thing that is often difficult to implement is providing class boundaries, regarding which business matters and which family matters. It’s good to give an understanding of how to run a business like a professional, even though the relationship between the administrators is still in family ties. In business matters, it should not be mixed up with family positions. For example, as the eldest generation wants his choice to be the final decision, but you as his grandson hold the highest position in the business, then you are more entitled to make decisions. Of course, it is still accompanied by clear and mature considerations.
Keep Adding Insights and Knowledge
The next tip for building a business with family is to never get tired of learning. You should continue to add insights and knowledge by reading books, joining workshops, and networking with experts. If there are things you don’t know, don’t hesitate to ask your parents or previous company managers. You can ask for consideration of the problems faced.
Create a Business Agreement
Starting from the profit sharing system, share ownership, to the limitations of doing business should be made black and white. In the sense that there must be a letter of agreement so that the parties involved are not arbitrary in running the business. It’s not that we don’t trust our own family, but doing business with family also often causes problems. Well, if at any time the business is in trouble, this written agreement can at least be used as a form of settlement to determine who is right or wrong.
What are the Benefits of a Letter of Agreement in Business with Family?
As explained in the seventh point above, creating a letter of intent when running a business with family is very important and can have some significant benefits, such as:
Clarification of Roles and Responsibilities
An engagement letter helps clarify the roles and responsibilities of each team member in the business. It covers the division of tasks, financial obligations, and expected contributions from each member. As such, the engagement letter helps prevent future conflicts and confusion.
Legal Protection
A formal engagement letter is a legal document that provides protection for all parties involved in the business. In the event of a dispute or disagreement in the future, the engagement letter can serve as evidence and guidance that can be used to resolve the dispute in a fair and transparent manner.
Profit and Loss Sharing
A business agreement with a friend can contain provisions regarding the sharing of profits and losses. This helps prevent future arguments or inequalities, as well as providing clarity on how profits and losses will be distributed among the business owners.
Decision-making Arrangements
The engagement letter may contain provisions regarding decision-making in the business. This may include mechanisms to reach agreement, avoid deadlocks in decision-making, or perhaps stipulate a majority decision if needed. This helps maintain smooth business operations and avoid prolonged conflicts.
Business Dissolution
An engagement letter can set out the procedures and conditions for the dissolution of the business should it ever become necessary. It covers matters such as the division of assets, settlement of debts, and liability towards third parties. By having clear guidelines, an engagement letter can help avoid serious conflicts and smoothen the process of business dissolution.
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Those are some things you should consider and do in running a business with family. Building a family business does take a long time, so you should be consistent and never give up.
READ ALSO: Know the Profit Sharing System Between Investor and Business Manager
Furthermore, creating a letter of engagement is also a prudent move when running a business with family. It is advisable to seek help from legal professionals to create a letter of agreement, one of which is Contract Law. We can help you to create an official cooperation agreement, in accordance with applicable laws, and cover all important aspects of your business. Let’s run a business with your family smoothly and safely, by visiting the KH Services – Cooperation Contract page. For consultation on other business needs, you can also contact us at Ask KH or send a direct message (DM) to Instagram @kontrakhukum.
