Why You Need to Have a Difficult Discussion With Your Business Partner
Going into business with someone else is like entering into a marriage. If you have more than one partner, it is even harder. What do you know about your business partner? What should you know about your business partner?
The conversation you should have, before you start your business together, should include questions about everyone’s personal financial situation. Is anyone living paycheck to paycheck, without any financial cushion? This impacts you if your business needs an infusion of cash (which is common at the beginning). Is your easy business funding partner a spender or a saver? Spenders spend any money they can lay their hands on, including business funds. Has anyone declared bankruptcy in the recent past?
Is everyone healthy? Are there any health problems that will affect how much time you and your partner can devote to the business? Are there any family issues, either with children or with older parents that might distract you or your partner from concentrating full attention to the business?
How will you divide profits and losses? Is anyone contributing so much that they should have a bigger share than everyone else? What if they are contributing only cash and will not work in the business? How will that partner be treated?
What business skills is everyone bringing to the business? Which one of you is good at marketing? Who is good with the financials? Who is an expert with computers and software?
What are everyone’s expectations regarding the business? Does one of you want to keep it small and the other one want to grow an empire? Does everyone expect to be in business for years to come or does one of you think of creating the type of business that can be sold to a third party for a lot of money? Do you expect all of your partners to work full-time in the business? Is anyone running another business and thinks they can handle more than one business at a time?
What will you do if there is conflict between/among the partners? If there are two of you and you each own 50%, what will you use as a tie-breaker?
Don’t avoid this conversation. Things will only turn out badly if you don’t know everything about your business partner.
All of the issues that you discuss should be memorialized in your shareholder/ operating agreement. If you think it’s expensive to work out these very important differences now, think of how much more expensive it will be when you’ve opened for business, things go wrong, and you want out or to push your partner out.
Call me to get an operating/shareholder agreement that will protect you. It’s worth it to get it done properly now (it’s cheaper and less emotional now than when you and your partner are at war).