Article #30, January 31, 2005
Prepare Your Partnership for Prosperity and Pain
Being in business with a friend, boyfriend or husband sounds fun and exciting! Speaking from experience, a solopreneurship can be lonely and frightening. Having a partner not only makes the process more enjoyable, but mitigates some of the risk.
However, and isn't there always a however, introducing a partner into your business brings additional risk in many areas. Some of the more obvious risks include spending too much time together and putting a strain on the personal relationship, and simply disagreeing on decisions.
There are much bigger questions to be answered. What happens when you are successful? How does each partner get repaid for her start-up investment? This seems like a pretty straight -forward question, but what if one partner contributed more money and one contributed more labor and expertise?
This question and many others, must be resolved clearly in a legal document. Other potential conflict areas to be prevented include ongoing compensation, cash vs. investment and growth and staffing strategies. For example, if you plan to borrow money at a certain point in your growth, you will need to have not only the documented revenues to warrant the growth investment, but you will also need some assets to get the best interest rates. If the only assets that you have are intangibles, like client lists and valuable brands, you will probably need liquid assets.
(See your banker for more information on this.)
Let's fast-forward a bit. What if one of you decides to sell your portion of the business? How will you decide on the value? Can she sell to anybody she wants? Imagine that you and your partner build a successful business over time and continue to be best of friends. Then, out of the blue, she becomes disabled. Can you run the business alone? Her family is expecting to continue to get paid - how will you manage without her?
Make sure to hire a good attorney, and discuss your plans with your team - including your CPA and insurance broker. Then you can concentrate on building the business!