Teaming up with family members can be a great way to get a new online business off the ground – but make sure you consider these five points before taking the plunge.
For some people, the idea of working in an online business 24/7 with their family is far from appealing – after all, sharing Christmas Day can be enough of a challenge. But for others, working with loved ones is seen as a positive and a great opportunity to develop a family-owned asset.
If you are thinking of starting an online family business, or if you already own one, here are some ways to help ensure its success.
1. Consider your business structure
There are four types of business structures in Australia – sole trader, partnership, company and family or discretional trust. This last structure has advantages for family businesses, as it provides greater flexibility for income distribution and has attractive tax benefits. You can choose to split the income with family members, who become beneficiaries of the trust and pay tax on the income they receive.
“With a family trust, everything is simply owned by a trust and nobody has a specific share,” explains Jon Kenfield, chair of the Family Business Consultants Network. “You have a number of discretionary beneficiaries and they are all entitled to receive benefits from the trust, but they don’t actually own anything in it.”
Family trusts have trustees who determine fund distribution. These may be the parents or, in some cases, lawyers or accountants, which can help to remove personal complications.
2. Protect from family fractures
Even the closest families can experience disputes that can affect the family business.
“If you’re talking about multiple generations, there is always a concern that marriages may fail and that can have a dramatic impact on the business,” says Kenfield.
This is where the family business structure becomes even more important. “If the business is owned by the trust, not by the individual members of the family, if somebody wants to have a crack at an individual member of the family, they don’t own anything in respect to the business,” says Kenfield.
3. Plan your exit
An exit plan can help shape the future of a family business. It may include appointing a family member or a professional manager to take your place. It could also include liquidating or selling the business.
Despite the value of exit plans, the 2013 MGI Australian Family and Private Business Survey, researched by Melbourne’s RMIT University, shows that 68 per cent of the family business owner-managers surveyed do not have adequate exit or succession plans in place.
“When you go in, it’s important to decide how you’re going to go out,” says Kenfield, adding that this might involve a multi-generational plan or perhaps setting up a business with a view to selling it in a few years time and moving on to something else.
The most successful transitions take years to plan and implement. “I always think of exit or succession planning as a piece of continuity planning, because it’s normally not the end – it’s just a bookmark in a continuum,” says Kenfield.
4. Develop a family plan
Business plans help to keep you on track, but Kenfield says family businesses should develop a second plan – a family plan, which lists your personal objectives and how they are translated into business performance goals.
“Usually, the family plan is no less than 25 years, and that often takes people through the period where they think one generation is going to shuffle off its mortal coil,” he says. “I’m currently working with a small family business. We’ve done a long-range family plan so they are clear about where they are trying to get in life and what they want to do and how they want things to work out for their kids.”
5. Create a family constitution
For a family plan to remain solid, it should be supported by a family constitution. “It’s like a family rulebook,” explains Kenfield.
A family constitution can list such things as how members will be remunerated and how benefits from the business will be protected through measures like binding financial agreements with a spouse or a partner.
While a family constitution is not a legal document, Kenfield says it becomes legally persuasive if a family reconfirms it each year. “If a family has a history of that kind of compliance, that’s going to be pretty powerful to put in front of a judge if you have a problem.”
Examples of family e-commerce businesses
Online activewear retailer Stylerunner was founded by twin sisters Julie and Sali Stevanja. They divide the business responsibilities, with Julie focusing on strategy and negotiations and Sali leading customer service and logistics.
In Geelong, Ash Howard now heads up Australia’s largest online pop-culture merchandise store, Popcultcha. The business was originally started by his parents and uncle more than 20 years ago.
And in Western Australia, online plant and flower retailer Plants4Perth was started by a mother and son team in 2008. Harlen Henderson says: “I started the business with my mum, who is my business partner. It arose because of personal needs – I previously worked at American Express in Sydney and I was really busy. I was also a garden lover, but was not an expert, and I wanted to go online and shop for plants easily.”