What I really want to share with you today are the lessons I learned while in a business partnership with two other women. It was an 8-month experience and, boy, did I learn a LOT! While the emotional pain, tears, and sleepless nights kept me from growing my core offering of brand identity design, I did gather information that I will forever be grateful for. If I can share what I learned and help someone else avoid my pain, I'm all for it!
So let’s talk! Here are the top five things I learned in my business partnership:
1. Get a partnership agreement.
It's absolutely vital to sign a written agreement up front, even if you are the best of friends. I knew this going in: you never know when things can go sour with someone you know.
This happened to me.
Hire a legal professional to organize the document. Just know that when things go sour, the legal person who helped create the document ONLY represents the partnership as a whole. They are not allowed to represent one single person in the partnership if problems arise months later.
Here are a few questions to consider as you prepare your agreement:
- Is this a part-time job or a full-time job?
- What will you do if the company dissolves or if one/two people want to buy out the others?
- How will the value of the company be calculated?
- What are the clear guidelines around capital contributions? (How much should be contributed by each party? When will it be reimbursed? How will that be documented? Important note: When people sneak around with money, they cross the line of trust within a partnership.)
Other notes on the agreement:
If each partner has an equal share, I recommend including a clause where two people can vote the other out. Better yet, instead of equal shares, make sure there is a majority owner that has full rights to make a decision over the other two - with consent, of course.
Clearly define the roles of any partner. Is one partner in charge of design and another in charge of production? What specifically does each partner do? If the shares are divided equally, who is in charge?
Clearly define the exit strategy of any partner. Do you want a non-compete? Remember, this has to be presented and signed at the time the business forms along with the partnership agreement. It cannot be brought up later down the road.
2. Meet regularly.
This seems like a no-brainer. Yet, when you’re first getting started, there are SO many things to do that meetings may get forgotten about or pushed to the side.
It’s imperative that you MAKE the time to meet with your other partners (whether on a call, Skype, in person, etc.) in order to keep the wheels rolling. In hindsight, meeting weekly is the best option.
Set expectations early on this boundary. If one person is putting the project or business on the back burner all the time by not showing up, then they are clearly not making it a priority - which is not fair to the other partners. It's easier to admit to yourself and the team that you don't have time for running a company rather than to be edgy, pushy, and rude because of the way you manage your time. The partners will take notice.
3. Do not avoid hard conversations.
A business partnership is like a marriage (as many people say) and I completely agree. If you or another partner has a hard time with or avoids hard conversations, it's a red flag.
Did you make a mistake? Admit to it. Are you unsure of how to handle a transaction? Share the concern with your partners. Do you really know how to set up the QuickBooks account correctly? If not, get help from an outside professional.
The government and tax laws are real! Google can be helpful but if you need more of a clear direction, bring it up to the partners and come up with a strategy together to get it done.
4. Go with your gut.
When you come up with an idea and want to share it with the world, it's best not to rush into things. If you feel in your gut that this thing is the way to go then stick with it. Get in there, make the time, and get your hands dirty in making it happen.
What I knew for sure was that I wasn't 100% on board. My gut and research told me to get a partnership agreement in the beginning just in case. But beyond that, I had weird feelings. If a partner questions your integrity after they show poor integrity (my experience 3 months in), take some time to review what your gut says.
5. Get personal legal counsel.
What I can tell you is to get your own legal counsel to represent you in the beginning AND if the partnership is going badly. Remember (as mentioned above in tip #1), the person who compiled the partnership agreement cannot represent you personally.
If you want to dissolve the partnership or you want to buy out or be bought out, get help. Lawyers can help you mediate legally and divide assets if there are any. They are there to walk you through all scenarios to move forward. They will help you get what you want and negotiate with the others without emotion.
Also, it's obvious to the legal counsel of the other partners when you don't have representation. You can ask the legal counsel of the other partners questions, but then you will risk being charged directly for their time and answers.
Remember that the partner paying for the legal counsel is being fully represented, and that counsel will vote in favor of such paying partner. If you don't hire your own lawyer, there is potential that you will miss something in the details or lose something you want to walk away with.
Here’s the bottom line: if you’re going to form a partnership, be sure to do so with wisdom.
Partnerships stand a greater chance of success if the partnership is formed legally and every partner is on the same page, communicates well, and trusts one another. Do your research and don’t rush into something without considering the cost.
Disclaimer: No names of people or companies are mentioned in this post. These are purely personal recommendations based on my experience within a business partnership as partner and designer for a t-shirt company. None of this information serves as legal advice. Please consult a licensed legal professional for specific details regarding your situation.