Hi everybody, this is Mondays with Mike, a weekly video series where I answer questions from people just like you. Here’s this week’s question:
I’m thinking about starting a business. I have a friend that is interested as well and has some money to invest. What are your thoughts about business partners?
I’ve had them, and they were great. I’ve had three business partners, I love all three of them. What I’ve discovered about me though is I’m not a business partner person, and I’m sure they would all say that’s true. I’m just not that guy, and that’s probably true if you knew my favorite song! It’s Desperado by the Eagles, followed by Colder Weather by the Zac Brown Band, followed by Turn the Page by Bob Sieger. So I’m probably not the best person to ask this question.
Here is what I’m going to share with you, and this is 1000% my opinion, I am not a lawyer, I am not a financial advisor, I’m just going to tell you this. Do not have a partner where you have the exact percentage of shares, that’s the first thing, because you’re going to get into a conflict. The second thing is if you have a partner in the business, make sure you have a fully ratified buy-sell agreement and a pre-nuptial agreement. And what I mean by pre-nuptial is the day you start talking about having a partner, the two of you need to start talking about what it’s going to look like when you break up.
I have counseled and coached multiple business partners who go through this ‘divorce’ who did not have a buy-sell agreement, who did not have a fully executed divorce decree (basically). They just said if we want to go our separate ways this is where we’re going to go. So guess what happens? Lawyers happen, court happens, friendships get lost, all kinds of things go down. I will tell you that it isn’t pessimistic to have your breakup ducks in a row before you get married (literally and in business).
So, if you’ve got a good partner and they’ve got money, negotiate the partnership, do not become desperate, and negotiate the buy-sell and the divorce decree prior to the time you go in business. Here’s why: you will find that you will feel much more comfortable. And it needs to be a mutually executed buy-sell, which means either party can call out the buy-sell in the event that a divorce is necessary.
I don’t want to say for certain that the divorce is going to happen, but the reality is a lot of business partnerships don’t work. We get enthusiastic because we have a great idea and we can go out and have beers together, but then we get under the hood and start working together and that can turn out very, very different. So, that’s what I think about partners. Be careful, have an executable buy-sell agreement, a breakup decree, make sure that the shares are clear as to who has power.
And let me share one more thing with you. Make sure you articulate before you start the business who’s going to do what, who’s going to make what decisions, and who’s responsible for what. Do not believe “we’ll just work it out”… do not do it.
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