Family Business - Thapelo Masilela

Doing business with family is probably the most ideal partnership, employee, client and even supplier because you are empowering one another, seems like a great idea, until it’s not. It definitely is advisable to empower family and ensure that the money circulation is not only in the community but also in the family because that is how you build an empire. A business that is starting out or still small would generally have resource constraints and using social and human capital in the form of friends and family is a more viable option as we all want to see our family and friends prosper.

Empowering each other is great, it is how we grow, there isn’t a problem in doing business with friends and family, however there is a problem when we start mixing business with friendship and family. The difference primarily being that sometimes when we do business with loved ones we tend to be too trusting, unclear and optimistic. Unfortunately when money and potential debt are involved, relationships which initiated the business matter little.  

The approach that should be taken is to document the agreement, have the terms, contributions and profit sharing clear from the onset. The failure to do this could result in legal battles over the profit or even in the case where things go bad the extent to the liability in your personal capacity. 

A list of top five things you should be sure to understand in any business venture or deal are as follows; one, the structure of the entity or deal, by this we refer to weather it’s a company being started and the type of company. Remember that different forms of companies have different benefits and disadvantages such as limited liability. The second would be the number of parties involved. This would be largely covered in the structure, however if you own 40% of a business it is important to understand how the other 60% is made up because ultimately you do not have a controlling stake. If you do have a controlling stake, it is still important to know all the players as if some are involved in questionable dealings, your business may be implicated. The third would be the time frame of the deal or the exit period of the venture. If you are part of a 10 year deal for only 5 years, we can leave that to your imagination. Number four, which is generally overlooked, is ownership which includes copyright and intellectual property. If two people combine to purchase equipment and one contributes 70% of the funds and the other contributes 100% of the skills and know-how, when the project is completed, who owns the machine or output. One well known example of this would be the Vodacom Please Call Me case. Last but not least, unfortunately in life we have tragic events such as death.  These discussions should be held to ensure that our loved ones bear the fruits of our labour even in our absence.

 

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