Thursday, August 22, 2013

Don’t Go Into Business with a Friend Before Reading This

Congratulations! You and a friend have a great idea and are ready to forge out on your own. And while I wish you well, it’s a fact—many business partnerships fail.

Here are the top reasons why.

Personality Clashes
It’s to be expected that your personality will differ in some respects from your partner’s—you’re two different people after all. But are you aware of these differences, and are you prepared to manage them? Don’t underestimate how your personality and temperament will influence your attitudes about business. For example, a more accommodating personality may be prepared to lower product prices to meet a customer request when the more demanding personality is prepared to walk away from the deal.

Rather than engaging in unproductive conflict over differences, be prepared to make allowances for each other’s weaknesses and capitalize on each other’s strengths. And if you're not sure what those are, consider the benefits of taking a reliable personality assessment, such as the Myers-Briggs Type Indicator®, and discussing the results with your partner. Remember, there is no right or wrong here. The point is to know, in advance, how each of you tends to view the world, approach problems, and handle conflict before it matters.

Differing Visions for the Business
One of you hopes to launch the business to change the world and profoundly impact lives while making a “decent” living. The other wants to make a ton of money, period. As a result, you won’t approach business the same way, meaning you won’t approach opportunities the same way, you won’t approach challenges the same way, and you won’t approach growth strategy the same way.

For example, your friend is prepared to do some work for free or at cost, and you’re completely opposed to that. Or, you’re adamant about supporting local businesses, but your friend wants to purchase supplies from cheaper vendors overseas.

You and your partner won’t need to have exactly the same vision to go into business together, but you’ll need to be aware of any major differences at the start to avoid disappointment and problems down the road.

Ego Overload
You started your own business so you wouldn’t have a boss, and it’s only natural that you don’t expect to be “bossed” around. But you and your business partner are responsible to each other—one of you just can’t do whatever he pleases without the other’s consent. On the other hand, a business venture will require lots of decision-making, and each of you must have some degree of autonomy or nothing will ever get done. (Plus, you’ll hate it.)

So, be smart and discuss at the start how decisions will be made. What decisions can be made without the other’s agreement? What decisions will require input from both? Will you schedule regular meetings to check in with each other, or will you meet as things come up? Is one of you “more in charge” than the other? If so, in what areas of the business, and how will you keep each other informed and accountable?

Filthy Lucre
Your business is turning a profit, yahoo! Well, I hope your business realizes profits. And when it does, how will they be split? Actually, let’s back that up a bit. Do you and your friend/ business partner even agree on the meaning of the word “profit?” Uh oh. Now’s a good time to find an accountant, then, and make sure you and your partner are on the same page about when the business is ready to start paying you and in what amount.

While you’re at it, make sure you agree on whether payment will take the form of a salary or an owner "draw." Each decision has tax consequences of which you’ll need to be aware (another reason to find a good accountant, by the way.)

And no matter what, before going into business with a friend, make sure you know the answer to this question:

What Will Happen If One of You Wants to Quit?
Do you already know how you’ll dissolve the partnership? Doing this properly is going to require more than one partner saying, “I’m tired/bored/moving across the country. You can stop paying me now.” As partners you have legal obligations to each other and to the business, and you’ll want to make sure that all the details of this significant step are handled correctly.

And finally …

Don’t Forget the Basics …
Yes, you’re friends and trust each other, but you’ll still want to get a partnership agreement in writing. Sites like Nolo and legalzoom can provide a template for a small fee, but it can’t hurt to have the document reviewed by a lawyer as well. (Since you’ve already put the document together, this service shouldn’t be too costly.)

You can have a brilliant idea, plenty of funding, fantastic vendors, and customers eager for your product, but your business could still fail if the relationship between you and your friend/partner isn’t in tip-top shape. So start the serious conversations now, and you’ll avoid some serious problems later.

No comments:

Post a Comment