What is a Family Business & How to Start a Family Business in India?

Imagine a popular, family-run bookstore in the heart of your neighbourhood run by the Patel family. Raj Patel, the head of the family, curates the book selection; Aditi Patel, his wife, handles finances; and Anika, their daughter, organises community events, all contributing to the success of the business.

However, running a family business isn’t as simple as it seems here. It involves multiple crucial aspects as well as challenges. So, if you are wondering what a family business is, how it operates, and so on, keep reading to learn more.

A family business is one where the family members own, govern, and control the daily business operations and possess the majority of the entity's ownership. The members of this type of business have the power to influence the decisions of the business as a whole.

In these businesses, the members are usually related by blood, marriage, adoption, etc.

Family businesses are widely acknowledged among the oldest prevailing economic systems that have a considerable contribution to the Gross National Product (GNP) of the nation.

Apart from the features listed above that define family businesses, the most distinctive quality of these businesses is that the entity treats even non-family members or employees as its own family members.

Mentioned below are three common types of family businesses prevalent in India:

• Family Owned Business: Family-owned businesses are considered one of the oldest forms of business. As its name suggests, a family-owned business is an entity wherein the controlling size of an ownership stake is owned by a family or by the members of the family. For example, Reliance Industries, Aditya Birla Group, and Tata Motors are three top-notch family-owned businesses in India. 
• Family-Owned and Managed Business: In a family-owned and managed business, its control and ownership belong to a single family or a single member of that family. In this business requires the active participation of a minimum of one family member at the top level of the organisation so that one or more family members can have ultimate control over management. For example, Godrej, Bajaj, Hindujas, etc. 
• Family-Owned and Led Business: In a family-owned and led business, one or more family members are appointed as the majority of ownership. Here, a minimum of one member from the family is a member of the board of directors, and one family member is deployed at the position of a majority stake. This way, they can formulate the best strategies and plans to achieve their business goals. For example, Thapars, Adanis, Mahindras, Jindals, etc.

1. Restaurant

One of the most common and effective lines of family business is opening a restaurant or cafe. The restaurant business is in high demand and very few players can sustain the market competition and environment.

Major causes of this issue are rising costs and lack of trust or confidence among the employees. Therefore, the family restaurant business is an excellent idea as every member has the same goal, consistent incentives, strong bonds amidst difficult times, and an unmatchable trust level.

2. Clothing Business

The clothing industry is booming rapidly,, and what a great way to start a family business in clothing and create a legacy. Depending on your goals and suitability, you can opt for a manufacturing or retail business model.

Many family businesses in this segment have vintage clothes as their USP products to remain distinctive in a large market.

3. Pottery Business

There are many areas of Jaipur, Uttar Pradesh, etc., with a rich legacy of pottery-making businesses. Many generations learned pottery at a young age and are carrying forward their family business of making and designing pottery.

In modern times, these art pieces are attracting immense praise and demand. If you are looking to start a pottery business, use modern tools and techniques along with social media platforms like TikTok and YouTube for better reach.

4. Interior Design Business

An interior design business can cater to various demographics through a well-established family business. If your uncle and family members are residing in different parts of the country or world, you can start an interior design business catering to different customer segments, locations, etc.

Apart from these commonly found businesses, there are many other options as well. These include retail stores, rental businesses, car wash businesses, event planning businesses, baking businesses, laundry businesses, gyms, crochet businesses, etc.

1. Owner-Operator

2. Partnership

This structure works well for many family businesses, especially during the start-up phase. In this model, only the company leaders can be owners and earn financial benefits. There are three types of business partnerships:

• General Partnership
• Limited Liability Partnership (LLP)
• Limited Partnership

3. Distributed

4. Nested

5. Public

In this structure, a portion of the company's shares is publicly traded. The company can operate like a public entity even if it is privately held and controlled by family members. This setup is suitable when owners cannot actively contribute to the business or prefer not to make day-to-day decisions.

Read More: Different Structures of Family Business

There are many benefits and reasons why you should start a family business. In times of layoffs and high retention rates, family businesses hold many advantages:

• Shared Values: When a business has members from the same family, there are common beliefs, ideas, ethics, and values. As a result, there is greater unity, cooperativeness, and a common goal of pride and purpose.
• Commitment: The main aim of most family businesses is to achieve longevity in the business and create a legacy for the upcoming generation. This implies that the family members will make extra efforts in daily operations to make the business successful.
• Reduced Costs: There is a high chance that members of the business will sacrifice their personal monetary goals to prioritize family business growth. For example, in many types of family businesses, members accept lower salaries than market standards to contribute to their business growth.
• Loyalty and Stability: When employees are dissatisfied with their jobs, they usually do not hesitate to leave the organization. However, in many types of family businesses, people tend to stick to their family-owned businesses and aim to build generational wealth.

Step 1: Decide on Your Business Idea

Step 2: Setting Role & Responsibilities of Family Members

Step 3: Designing Policies and Rules for Business Operations

Step 4: Risk Management Procedures

While ideating your business and setting out detailed plans, it is crucial to consider the business risk element.

You must consider the chances of business failure and gather suggestions on the action plan for the same. It is advisable to ensure family members are open to bearing any unforeseen risks.

Step 5: Decide Workload Management

Step 6: Determine the Salaries and Ownership

There are different ways of computing the pay and salaries of the employees and family members. You may decide on compensation depending on the type of work the employee is engaged in.

Additionally, you must set out the terms of ownership and the ultimate owner of the business. It helps determine the voting rights, final decision-making power, etc.

Step 7: Formulate Exit and Succession Process

Define the process and policy of exit and transition of power to heirs. A family member might exit the organization to pursue further studies or settle abroad in pursuit of better opportunities.

While leaving the family business, you need to decide what will be the settlement dues to the member leaving.

Step 8: Kickstart the Business

After outlining the plan, setting out responsibilities, and structuring the business, you are good to go. You must contact a lawyer or hire a business consultant to launch your family business. Your lawyer can help you with the necessary paperwork and guide you on numerous areas like employee benefits, retirement plans, tax aspects, etc.

Once you get guidance from the lawyers or consultants, you can register your business and fill in the vacant positions by hiring employees from outside the family.

Succession Plan

Two-Way Communication Chain

Communication is one of the most crucial factors in the success of a family business. Since all members are from the same family, there should be open and clear communication among them.

Any communication lag or delay can spark conflicts personally and within the organisation. A clearer and more open communication channel leads to fewer misunderstandings and better productivity.

Flexibility and Adaptiveness

Value Customers and Employees

It is important to prioritise customer's needs and expectations from a family-owned business. Over the years, customers have perceived family businesses as more reliable, secure, and trustworthy.

In return, family businesses should also value the customers, gain feedback for their products and services, and innovate the same. Additionally, you should value your employees and make them feel like one big cohesive family unit.

Set Boundaries Between Personal and Professional Lives

A successful family business tends to have values and vision, proper planning, family governance, cohesion and interaction, and clarity on their leadership roles and principles. Some of the common characteristics of family business are discussed below:

• Families can connect effectively by expressing and admitting each other's feelings, needs, and ideas clearly, with a positive mindset of accepting differences and not keeping secrets.
• Any disagreement and conflict inside the family are evenly managed with respect, clear communication, and honesty.
• The family supports and encourages individuality in their members, both regarding their strengths and weaknesses, and sometimes this may affect the family business.
• The family can diligently identify when and where to do the needful concerning the family's essentials and when to consider the business's requirements.
  
• Business, management, and operational infrastructure, systems, and methods are authoritative, well-documented, and reviewed regularly for enhancement.
• Successful family businesses come with an efficient board of directors or mentors comprising at least two non-family members.
• Family members or relatives joining the establishment should fulfil the same job qualifications, eligibility criteria, compensation standards, performance evaluations, and so on as non-family members.
• Family businesses are equipped with skilled and intelligent leaders known for their vision, competence, respect, and outstanding communication skills with their employees, sellers, and consumers.
• The family business organises a 'Family Council' every year, comprising all family members, spouses, and children over 16 years old. The main purpose of this council is to formulate family and business plans. It also assists the family members and prepares them to participate in the business sooner or later.

Mentioned below are some of the effective reasons that make the family business a unique occupation:

• Stability: There has been stability in a family-based enterprise due to the longevity in a leadership position. In this type of business, the front-runner retains their position for years, with various life events such as retirement, disability, death, etc., causing changes at the top.
• Commitment: Family businesses tend to pay more attention to commitment and responsibility than non-family establishments due to their necessity for business and family. These characteristics help understand the business, job, and organisation, as well as efficient marketing and healthy customer relationships.
• Creative Freedom: As the owner of a family business, you will have the chance to work in the field of your preference. You can use your skills and aptitude effectively and earn personal satisfaction by implementing your innovative ideas and seeing your business prosper.
• Long-Term Perspective: Non-family businesses need to formulate plans and decide on goals on that basis. However, in the case of a family business, they can think about the goals in advance. This long-term outlook helps them make prudent decisions quickly throughout the business.
• Flexibility: Regarding non-family businesses, they must conform to delineated responsibilities while running the organisation. Conversely, the participants of family enterprises can carry out the tasks outside their predetermined roles.

Mentioned below are some disadvantages of a family business:

• Lack of Structure: Since family businesses are concerned about trust and loyalty, they can lack robust internal rules alongside external corporate law.
• Lack of Family Interest: In some cases, future generations might not show the same keenness towards the business as their preceding generations. This can lead to apathetic, uninteresting, and disengaged workforce management.
• Nepotism: Several family businesses encourage family members to be in top managerial positions, even if these members have inadequate education, skills, and knowledge to carry out those responsibilities. This is a major disadvantage that adversely affects a company's success.
• Conflicts between Family Members: Another disadvantage of family businesses is conflicts among family members, illicit family history, sibling rivalry, etc. Furthermore, an imbalance between business life and family life can lead to confusion and conflict.
• Succession Planning: Plenty of family-based enterprises run on pre-determined succession plans. During an emergency of appointing a successor due to illness or death of the business owner, it can become questionable for the business whether the successor can maintain the same glory of the enterprise or not.

From the above discussions, you have understood what a family business is. Knowing every detail about this occupation may help you set up your family business efficiently and successfully. 

However, while running this business, make sure that you follow its rules and regulations thoroughly and encourage more family members to participate in the business in due course of time.