You’re about to start a business
The early stages of business are exciting. You’re nervous, optimistic, hopeful, and you feel a tingling in your veins. You’re onto a good idea and you’re excited about getting knee deep into it. Maybe your business idea is too big for one person. Maybe you have strengths in one area and not another. Or maybe you and your friend/lover/sibling/parent/cousin/workmate hatched the idea together, and now you’re going into business.
Some business partnerships work like a dream. Others don’t. And when you’re in those exciting, nerve tinglingly exciting early stages of planning, the last thing on your mind is that you and your business partner might not work well together. But early on is the best time to start thinking about building a business framework that suits both of you.
Here’s some talking points for a conversation with your soon to be business partner:
Who contributes the money?
It’s really important to work out early on who’ll be fronting the money for your new business. Will you both be contributing cash, and in the same proportion? If one is contributing less than the other, is business ownership going to be split the same way? There’s also the issue of what happens if the business needs more money later. You may be going into business with someone with personal finances very different to yours, and it’s important to understand each other’s expectations and limitations so you can plan for the future.
Who’s focusing on the business?
Building a successful business takes effort, skill, determination, flexibility, communication, and most of all, time. In the early days one of you needs to be spending a considerable amount of your focus on the business if it’s going to work, and it’s good to agree who that’s going to be. Some business owners I’ve worked with have taken turns with this, opting in and out of the day to day business as life suits them. Your business needs to be nurtured and tended to if you want it to grow into something great.
What happens if one works more than the other?
It’s common for one business partner to be working more than the other, and it’s also common for business owners to work without being paid in the early days. It can be a good idea for both of you to keep a record of the time you spend on your business (there’s heaps of online tools to help you do this) so you can be paid when the business can afford it.
Once your business is making a profit, you’ll need to decide how each of you will be paid. Some business owners take a salary and others get paid out of the profits. You may need an accountant to help you nut out the details of this, but there’s still plenty you can thrash out yourselves. I’ve seen many arguments around this part of starting a business, so I recommend you have a vigorous discussion about this stuff early on, and make some basic decisions.
Who’s responsible for what?
In the early stages of a business idea you’re probably working simultaneously on a lot of things, and that’s ok. For a little while. But if you want to get somewhere you’ll need to split up and focus on what you’re good at. This may chop and change as the business gets more established, but it’s a great idea to understand early on which parts of the business each of you would like to be responsible for.
Some areas of the business for consideration are:
- Marketing and communications
- Sales/business development/relationships
Once your business is more mature you’ll likely hire or outsource some of these areas. But as the owners you still need to be across everything that’s happening in your business, making sure everything is ticking away and working well.
What is your exit plan (if it comes to that)?
It may seem silly to be talking about exiting the business before you’ve even started it, but trust me. It isn’t. It’s important to know what you both expect might happen if one or both of you wanted to exit the business.
Some talking points could be:
- How will we decide on a value for the business, or who will we ask to value it for us?
- If one partner wants to leave the business, and the other person doesn’t want to sell, what would happen?
- What would happen if the business was approached for take-over or merger?
You may not be able to answer these questions yourselves, but it will still be useful to explore this so you can get a feel for what the other person’s approach might be.
What kind of legal structure will you set up?
Unless you ARE an accountant, I highly recommend you go and meet a good one before you get too established in business. Getting the right structure set up can make all the difference later on – to distributing profits, protecting your personal assets, protecting your business assets, paying tax and employing people. You should be able to get some initial advice from a small business or tax accountant to consider for less than $500. It could be the best money you’ve ever spent.
The right accountant or small business lawyer can set you up in the right structure, and discuss what you might include in a partnership or shareholders agreement. A standard company set up only comes with the bare minimum when it comes to an agreement between the two of you. It could be helpful to draft a legal agreement with the help of your advisor to formalise things. A well drafted partnership or shareholders agreement will save you a world of pain later on.
How will decisions be made?
Unless you have a conversation about this early on, you may be suprised to find that your business partner makes decisions very differently from you. It’s important to establish ground rules about big and important decisions, so you keep the lines of communication open. Some decisions can be made by one of you, allowing things to move forward quickly. Other things, such as signing a new lease, hiring someone or paying a large invoice, need to be discussed and agreed to by both of you in advance.
What happens if you disagree on something?
Even the most brilliant communicators still have disagreements. And some healthy debate and discussion is really important for great decision making. But there may be a time in your business when you can’t agree, and it’s about something really important. You may like to appoint a potential mediator, advisor or mutual friend to help out in this instance. It needs to be someone level headed and impartial. You also need to decide whether this person gets to vote on the issue or just help you to agree yourselves. It’s great to nominate this process before you disagree on something, so you can get straight into making your decision.
Monitoring your performance
This one is probably the trickiest of all – what to do if your business partner isn’t performing. This happens more often than you might think – where one business owner feels like they’re contributing more than their partner. And it can cause huge rifts. It’s important that you have a good working relationship, and objective, measurable ways to monitor each other’s performance.
One way of doing this is to create key performance indicators (KPIs) for each of you. Unless you are experienced in this area, it could be a good idea to have a business mentor, advisor or performance consultant help you to put these together. It can also be useful to have that person meet with you once a year to review each other’s performance, and track against your targets. I’ve seen fantastic businesses suffer because the owners weren’t on the same page, and they didn’t know how to communicate their dissatisfaction with each other easily.
Describe what success looks like
Once you’ve got all that serious stuff out of the way you can start dreaming about what your business is going to look like. It can be lots of fun to start thinking about what success looks like for each of you, and can be quite telling. For some business owners success is about being the best at something. For others it’s about working less and spending more time with their families. Some business owners only think about impact – how much of a difference are they making to their community, their environment and their customers. Success comes in a variety of forms, and it’s helpful to have some goal posts to see along the road to your success.
Business owners who set goals, visions and targets are more likely to achieve them.
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If you’re a business owner who wants to discuss any of the topics in this article please get in touch. We work with our clients in a variety of ways – as business mentor, business manager, CFO, accountant, confidant, advisor and cheerleader. We work with thoughtful business owners who want their business to be the best it can be. If that’s you, we’d love to hear from you.
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