Awkward business partnership conversations you shouldn’t avoid.
Stats show that 70% of business partnerships fail. This attests to the fact that business is a tough territory. Irrespective of whether or not your new business partner is family or a firm friend, stormy seas bring true character to the fore. You may be surprised at the person you thought you knew. Add money, ego’s and different value systems to the equation, and it’s easy to see why things can go awry. However, partnerships can and do blossom into thriving businesses. You just need to put the right checks and balances into place before embarking on your new business endeavour.
From Business insurance to Partnership agreements, it’s vital you have these awkward conversations with your potential business partner:
- How are we going to handle the start-up funds required?
It’s unlikely that you and your potential business partner will be in the same financial positions. One of you may be fortunate enough to have access to substantial personal capital, whilst the other could require a start-up loan for the equipment, stock and the first 2 month’s office rental. Will the business take out a loan, or will the money-flush partner be happy to put in the capital? At this juncture, it is advisable to consult with a financial expert so that they can advise the best way forward – one that is beneficial to both the business and the partners.
Conversations around equity may come into play here. For instance, the party that contributes more financially will get more equity. To assume a 50/50 split in ownership may be the easiest solution, however, based on financial and time contributions it may not be the most fair in the long-term. Be cautious of future resentment based on rash and impulsive decisions and look into the best ways to split equity.
- Where do you see your life in 5 years?
To build a successful business takes time. Several business publications recommend having enough money to support yourself and your new business for 6 months. Are both partners in it for the long run? Ask pertinent questions, for example does your partner have plans to emigrate in the near future. Where does your partner see themselves living in the next 5 years? Perhaps they see this new business as an opportunity to make quick money before selling, while you see it as a legacy to leave to your children.
Chat these things through before jumping into business together. Ensure you are on the same page so that one of you isn’t left hanging. Contingency plans can be made well in advance for the exit of a partner if you are forewarned.
- How would you describe your work ethic?
Being friends, spouses or work colleagues who are planning a breakaway business can mutate into an entirely different relationship dynamic when you become business partners. You may think you know someone like the back of your hand, only to be dumbstruck when they arrive at your new office at 9h30 am every day. Perhaps your partner believes that Friday is an excellent day to take off now that they’re their own boss! It’s not long before your different business hours will begin to irk you.
One of you may be the more natural leader and better at client interface. The other is more organised and will focus on dotting the I’s and crossing the T’s after the meeting. You may insist on being on the sidelines every time your ten-year-old has a rugby match, while your partner has chosen to put the new business above family commitments.
You need to discuss your value systems and define your partnership roles clearly. This is not a friendship. This is a business. Moreover, peoples’ livelihoods depend on it. Ensuring that the ground rules are set up front, will give your partnership a far greater chance of success.
- What Business insurance should we take out?
Everyone knows that Business insurance is an essential inclusion in any business. However, when you’re just starting out, money is invariably tight, and the temptation to delay Business insurance may cause some debate between business partners.
This is one of the most important conversations you will need to have because Business insurance can’t be delayed. It would be best if you discussed precisely which areas of your business require insurance cover and obtain quotes to put the right cover in place.
Just some of the Business insurance options for discussion are:
General Liability insurance – even if your business is home-based, this insurance provides for defence and damages if you or your employees or your products or services cause (or are alleged to) bodily injury or property damage to a third party.
Buildings insurance – this provides cover in the event of fire, flood or unforeseen disasters.
Car and fleet insurance – there are various cover options available depending on your business’s requirements. Discuss optional extras such as travel cover outside South African borders or sound equipment and car hire.
Professional Indemnity insurance – this covers improper rendering of professional services. In the event of allegations of negligence which has caused your client financial loss, this insurance provides cover for legal fees incurred.
Contents insurance – this insurance will protect your business contents against accidental damage such as flood, fire and power surges. It does not necessarily cover electronic equipment, so make sure you indicate exactly which items require cover.
Your Business insurance requirements need to be well thought-out, as needs will vary between industries.
- What should we include in our partnership agreement?
It’s tempting to sign a stock-standard partnership agreement and venture boldly forth on a wing-and-a-prayer. However, putting together a thorough partnership agreement may save you much heart-ache one day. Ideally, you should have a professional put one together, to ensure you have every base covered.
Partnership agreements will differ depending on your industry. However, some fundamentals like authorisation authority, roles, and responsibilities, capital contributions, exit or dissolution strategies will likely be required regardless of industry.
From Liability insurance to Contents insurance, office hours to leave days, to a home-based office versus an office park with ocean views; entering into a business partnership requires a few awkward conversations. However, rest assured, you’re far better off having them up front so that your road ahead isn’t peppered with nasty surprises. Starting a new business is one of the most exhilarating things you’ll ever do, and with the right focus and plans in place, success is yours for the taking.