So you are considering starting a business with a partner or partners. If you’re doing so keep in mind some absolute truths. Most business partnerships end in a break up by a factor of 8 to 1. I know you’ve got the perfect formula – I’ve heard it before but… heed these words of advice. You must be willing to suffer the loss of your relationship if the business partnership ends.
Is your partner a friend or relative? If he or she is close to you, keep in mind the importance of this relationship. If you are going to have a partner, here is the best way to reduce compromising your relationship. Yes, even if they are your best friend or family member. Define to the finest detail your roles and responsibilities, all of your expectations and then have them reviewed by a non-biased third party (NOT YOUR MOM) and be sure the reviewer has a business background. Next, define exactly how all the income is going to be divided up – to the penny. Third, have clauses defining exactly how you may buy each other out for and how much in what type of payment if one party decides to leave. Don’t ever let the other party walk without a financial payoff — even if it is small. They will forever feel you jipped them and you’ll have an awkward five hundred pound gorilla between you forever. Finally, sign a document agreeing to these roles, responsibilities and financial issues. Consider this a pre-nup and be sure to understand the reason you’re doing this. You want to remain friends first and foremost because all the money in the world won’t buy you that relationship again. So, plan it out and make sure you are both on the same page with the same interest in starting a business. Don’t believe for a moment that you can separate business from your relationship — it’s a lie.
Have you “really” addressed the stuff that has been on your mind but is hard to talk about? Cover these things now before you go into a partnership and put plans in place that force a positive outcome fueled by your ability to recognize both of your shortcomings. Know your own personal limits and those of your partners. Most of the limits and problems in a business are fueled by personal “stuff”. It’s not that the personal stuff is all bad. Maybe you or your partner to be is married to a jealous spouse that will certainly have a problem with you starting a nationwide trucking service gone on the road 6 nights a week. Maybe your Mom lives nearby and requires your daily attention of which would certainly come to a screaming halt if you open that sign shop. Let’s face it, people are more important than money. If you don’t think so, ask the lonely and bitter millionaire. You will have to adjust your business model to suit both your lifestyles and personalities. This is the stuff, the personality “face the music” stuff that if addressed up front, during the planning stages, will reduce the likelihood of breakdowns and break ups of your new company.
By: Dan Nichols
Posts Tagged ‘Family Member’
Business Partnerships – Doing It Right
April 19th, 2010Prepare to Sell Your Business From the Day You Start Business
February 16th, 2010
Most business owners are wise enough to prepare a well thought-out business plan when they launch their businesses. This plan is tweaked and enlarged as time goes on and the business grows. What is missing from most business plans, however well-prepared, is an exit strategy. Ideally, one should start preparing to sell the business the day they start the business!
How do you prepare to sell your business?
1. Have good books from the start. Wise business owners already know to keep accurate and up-to-date records, but you would not believe how many are not wise. Prospective buyers will want to see at a minimum three years’ worth of accurate financial statements. These include a complete balance sheet, profit & loss and cash flow statements. In addition, prepare a 12-month projection (you should have one whether you are planning on selling or not). Savvy buyers will want to see that an outside accounting firm has audited, or at least reviewed, these financial statements.
2. Itemize personal expenses. It is common for business owners to “live out of” their businesses; these items are considered to be discretionary expenses. These expenses include your personal car, a family member who is on payroll who doesn’t work for the company, insurances paid for you and your family, etc. These items will be added to the net profit of the business to arrive at a more accurate bottom-line.
3. Organize, organize, organize! Prepare systematic documentation of all job descriptions, business practices and operational processes. The more systems you have in place at the time of sale, the easier it will be to sell and for the new owners to assimilate into the business.
4. Keep an accurate and active inventory valuation. If your inventory is stagnant, get rid of it.
5. Hire and groom key employees. If your business relies on only you for its success, you will not be able to get a good price for it. Key management employees will demonstrate that your business is capable of sustainment with or without you.
6. Obtain a professional valuation. Depending on the size of your business, contact a business broker or a mergers & acquisitions broker to give you a realistic idea of what your business is worth. In general, professionals such as accountants and lawyer do not have the needed expertise that a business sales expert does to value your business.
7. Make sure the appearance of your physical facilities is excellent – clean and organized. Prospective buyers will be conducting walk-throughs and you want to make a good impression.
8. Hire a professional to sell your business. Generally, if your business has annual sales under $5 million, you can use a business broker, commonly called “biz opp” brokers. If your business is larger that $5 million in sales, you need to be talking to a mergers & acquisitions professional.
9. Prepare well in advance. When I sold my business, I took a little over two years to prepare to sell it. I grew it – on purpose – in order to sell it. The best time, generally, to sell a business is when it is in growth mode. Between the listing of your business and the time you have a check in your hands can take anywhere from three to twelve months, or more.
By: Tina Marino
