Going into business with another person is a major commitment, one which I would consider equivalent to entering into a marriage. While a business partnership may not be “until death do us part”, like a marriage, a business partnership requires a sharing of finances, commitment, decision making and compromise.
Like a marriage, business partnerships have their ups and downs. Sometimes one partner may take on a little more of the burden which can lead to resentment. Sometimes there is interference from an outside party (often the person your partner is married to), and sometimes business partnerships, like marriages fail. Sometimes, but not all the time. Like a good marriage, a good business partnership takes patience, commitment and planning from all partners. It requires all partners to communicate regularly, vent their frustrations, listen to the other person, compromise, assist, empathise and not hold grudges.
I regularly see new business partners who want advice on how to structure their business and other tax and accounting issues. The one piece of advice I always give them is that they need to have the Partner Conversation as soon as possible. Ideally this is done while things are good and there are no frustrations. If you are in partnership it is not too late to have the Partner Conversation.
What is the Partner Conversation?
Ideally this is done over a bottle of wine, some beers, or if you are not a drinker maybe a cup of tea or a nice meal. It requires all partners to speak frankly and uninhibited and look at all the scenarios that could happen to the business. No idea is stupid. No one should be offensive to the other partners, but you will need to think of circumstances that may be difficult to consider. Importantly, you need to come to the decision of what you will do in each case. Write it down, sign it and give a copy to whoever you think should hold onto it. I suggest all partners have a copy, and maybe give a copy to your accountant or another trusted advisor.
This is not a legal document (although you can pay a lawyer for a shareholder, unit holder, or partnership agreement), but the spirit and intention is there. When things go to crap (which may happen), or one of these trigger events happens, there is some comfort in being able to remove yourself from the situation and make decisions based on happier times.
Here are some of the questions I believe you should discuss. This is not a comprehensive list, so feel free to add more.
- If the relationship falls apart, what will you do. Will one of the partnership step away from the business? Will you break the business up and take different parts? How will you value the business at that time? Would there be a trading restriction on any exiting partners?
- What will you do if one of the partnership dies?
- What will you do if one of the partnership has a serious illness and cannot work for a period of time? How long will you carry that partner (is it 3 month, 6 months…)?
- What will you do if one of the partners goes through a relationship breakdown and how could this impact the business?
- What will you do it a partner just wants to leave the business?
- What will you do it things go exceedingly well? Is there a timeframe when you want to assess the future of the venture, and consider selling the business?
- Will you formalise “Board Meetings” with the partners, and if so, what are you going to discuss, how often, in what format.
- What is the procedure for internal dispute resolution between partners? Is there a safe word, a talking stick, or a mediator that you can call on to have an honest, frank discuss limiting the emotional attachment?
- How will you manage individual expenses such as cars, phones and travel? Do you each get an equal allowance for expenses or do you just run the expenses through the business?
- Does each partner get compensated the same, or is there a compensation component based on some KPI?
- How are responsibilities divided?
- Is there a Managing Partner? Does this partner have the deciding vote in a deadlock decision, or do you have a different process for breaking deadlock decisions?
- What level of expenditure is acceptable without approval from the other partner? Is it $300, $1000 or something else?
I am sure you can come up with more questions, but this is a start. It is not a perfect science, and there is no guarantee that all partners will respond in the way you had agreed, but getting these difficult conversations out in the open at the outset can save serious problems down the track.
My business partner and I have these conversations regularly. While we definitely have moments where we frustrate each other (it really is like a marriage), we have something to come back to which grounds our thoughts. Acknowledging that each partner brings something different to the table, that we are both trying our best, we each have other things going on in our life, and being supportive of each other has made our partnership thrive. Communication is key, we talk all the time. Maybe we are lucky, or maybe we just work hard at it, or perhaps it is a bit of both. How seriously do you treat your relationship with your business partner? It is critical to your overall business success. If you haven’t had the Partner Conversation yet, just do it.