The saying “two minds are better than one” certainly applies in today’s marketplace where, as a business owner, it can be difficult to go it alone.
Pooling your talents together with a partner is a great way to share knowledge, equipment and expenses, and can be the ultimate recipe for success. But there are certain decisions to be made and legal implications to consider before you invite someone to be your business partner.
1. Put it in writing
A well-researched and written operating agreement is something that every business partnership needs. This is a legal document that defines each person’s rights and responsibilities within the business, as well as what happens if or when it dissolves. Some of the important clauses you need to factor in include decision making, capital contribution, salaries, death/disability and dissolution.
Pro tip: have a lawyer look over your final draft to make sure everything is solid from the start, in case disputes arise in the future.
2. Decide on the profit split
One of the main reasons people go into business together is to make money, and while a 50/50 split of profits sounds ideal, if one partner contributes more hours and achieves more results than the other, resentments can arise. As in any relationship, arguments over money can quickly be the undoing of a beautiful business partnership.
Pro tip: Decide on the roles and responsibilities of each partner from the outset, or introduce flexibility to your profit sharing strategy by paying each partner only for work performed based on pre-agreed rates.
3. Hold each other accountable
In any good business partnership, you need to hold each other responsible for where the organisation is heading. You will most likely already have the groundings of a friendship or at least a co-worker relationship. However, you also need to treat it as a business relationship, which means having aligned values and goals towards making a profit.
Pro tip: Factor in regular planning meetings for day-to-day company direction to keep each other on track, and invest in good reporting systems to measure the business’ monthly and yearly performance is on track.
4. What’s the vision?
A good business plan should answer two key questions: 1. Who are we? 2. What do we intend to do now and in the future?
Having a strong business vision will help you define your values like what you stand for, what kind of clients you want to have dealings with and what short and long term objectives you have. Writing a compelling and detailed mission statement can help clarify your goals around what impact you want your business to make.
Pro tip: Talk to a business advisor before you make your business plan. The team at Toohey Reid can take the weight of the unknown off of your shoulders, and provide you with sound recommendations and ideas for building a business plan that will help you succeed.
5. Prepare for the breakup
Relationships of all kinds ebb and flow, and even the most trusting friendship or solid working relationship can falter if someone decides to head in a different direction. There’s no guarantee that you will part on good terms (though it is the ideal outcome) so mitigating the risks for the future protection of both parties is wise to avoid lawsuits.
When writing your partnership buy/sell agreement, outline clearly how dissolution is to be handled. Things that need to be considered include: dividing resources, splitting legal fees and managing existing customers. It’s also important to have a detailed exit strategy, with proposed solutions to make the transition as seamless as possible.
Insuring for critical events such as death or TPD is another important aspect of any business partnership. While we don’t like to think about these things, it’s best to always be prepared and plan for the worst.
If you need assistance with growing or expanding your business, give us a call on (07) 3221 1055 or submit an online enquiry. We’re happy to help!
General Advice Disclaimer
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
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