What’s worse, a bad business partner or a bad marriage?
We have all learned lessons in life the hard way.
Even successful entrepreneurs such as Bob Gourley in Make Money for Bob: The Bottom Line on Entrepreneurship suggests that business partnerships are a little like marriage: “You may end up arguing over finances, commitment, duties and control.”
In my more than 20 years as a business consultant, I could not agree more. In fact, my experiences have taught me that businesses with more than one owner can be worse than marriage, because divorce is not an option and it may involve a lot more people. Listed below are my top four areas of focus when thinking about having a business partner or becoming a partner in a startup or an existing business.
- Money. This is probably the most difficult area to deal with in any business. Having multiple owners and partners certainly complicates the situation. This is where a complete operating agreement that includes every partner’s financial injection, salary details and sharing of any profits is not only necessary but should be mandatory. Going into business without full disclosure of a partner’s financial situation could be a disaster. This includes contingent liabilities the person might have such as pending litigation. Another caveat to business ownership is that all owners are typically required to provide a personal guarantee for all business debt.
- Duties and time commitment. I have seen the scenario repeated many times: You feel like you are working harder and more hours than your partner is. All the business responsibility seems to be falling on you. What if you had a written agreement detailing what roles and responsibilities each partner would perform? Certainly this would be helpful, and it is a big part of an operating agreement. Additionally, the operating agreement should include which decisions require a vote and what authority each owner has without the approval of additional owners.
- Dissolution. At some point, one or more partners may want to move on. There should be a provision in the agreement detailing how to sell or transfer ownership to someone else and leave the business. An example: Do you want to have the first right of refusal when someone wants to purchase an owner’s interest, or do you want to be able to prevent any ownership transfer that you or any other member don’t agree upon? On the darker side, it is important to include in the agreement what happens to a member’s interest in case of death. Addressing that question precludes you from a forced shared ownership that you would never have intended after a very stressful event.
- Family involvement. Several years ago, one family in Branson nailed this issue when I listened to them explain their policy of requiring family members to have experience outside the family organization before they were eligible for hire. When it comes to spouses and children working in the same business, things can get complicated. On the other side, family can be the most devoted and reliable employees. I also recommend a complete job description for all employees, with a realistic compensation schedule. Consideration for all partners’ families, along with employment details, should also be contained in the operating agreement.
I always recommend professional help preparing an operating agreement, whether or not required by your form of organization. This is especially true if you are new to owning your own business. It will be worth your time, money and certainly sanity if things get tough.– Contributed by Rayanna Anderson, MBA, director of the Missouri State University (MSU) Small Business Technology Development Center (a BDP program) and the MSU Management Development Institute eFactory. Anderson writes about issues she regularly sees consulting with small businesses in Springfield and the state of Missouri. Contact her with personnel and other questions at email@example.com. This article first appeared in the Springfield News-Leader and News-Leader.com. Used with permission.