Questions Potential Business Partners Should Ask Themselves
Starting a new company with somebody requires a hard conversation. Better now than later.
Starting a new company with somebody requires a hard conversation. Better now than later.
You and a friend have a can’t-miss idea for a new business. You’ve got a great name, and the logo is perfect.
It is time to ask each other some hard questions.
Talking up front about tough subjects like how you work, how you deal with stress and your expectations for the business can save lots of headaches later. “Most issues are neutral when you discuss them ahead of time,” says Jane Brodsky , who ran a barre-and-spin studio with a partner for 10 years in Washington, D.C. “But in the heat of the moment, issues become personal and larger than they need to be.”
Here are crucial questions that should be settled at the start to help make the partnership succeed.
Maybe you were raised in a family that talked through disagreements to find solutions. But maybe your partner grew up in a house where the loudest voice won. That could be a problem when issues arise in the business: Experts say that when people are under stress, they often fall back on behaviours that were imprinted at home—and different styles could clash.
At Happy Being, a company that sells nutritionally enhanced teas and drink powders, the three co-founders discussed communication style before they started the business. “We discovered that one partner gets triggered if he feels no one is listening,” says co-founder Dutch Buckley . “It goes back to an early fear of not being heard.” (For his part, co-founder Josemaria Silvestrini says that early on he “definitely needed the validation of being recognised and being right.”)
So, the three work at making sure everyone has a say in meetings, and they made a rule that no one’s work is ever belittled. On the flip side, when someone on the team accomplishes something, someone else on the team draws attention to it.
While these may seem obvious—like, the business either succeeds or fails—everyone’s definition is different, and they are surprisingly specific. Certainly, monetary goals or anything that can be enumerated will help partners envision each other’s goals. Is one looking to grow slowly with customers and suppliers in the community and get to better than break even after three years, while the other wants to be cash-flow positive in year one and scale quickly to sell the business to a larger entity after 10 years? There’s a lot of success and failure in between those two outcomes, depending on your perspective.
Silvestrini of Happy Being recommends hashing it out together on the whiteboard until everyone agrees on an explicit definition of success for the company. “Hopefully, it’s an easy 10-minute conversation,” he says. “Because if founders have different objectives, the boat is going nowhere.”
It is crucial to discuss what each partner is contributing to the partnership in terms of expertise, experience, network and money. Kathryn Zambetti , an executive coach specialising in founder relationships, recommends taking an honest strengths-and-weaknesses inventory of yourself and your partner and then discussing what you both bring to the table. The exercise will help delineate which responsibilities naturally suit each partner, and it will highlight areas that will require additional work or outsourcing.
The clearer the roles can be defined, the better. If you are opening a bakery, you and your partner shouldn’t both be good at just making bread. Someone needs to handle marketing, suppliers, leases and licensing, financials and hiring and managing employees.
You and your partner need to be in complete alignment on your motivations. Does this venture need to support your family or merely add to your vacation fund? Are you doing it to prove your father or your high-school econ teacher wrong? Any answer other than unfailing commitment to the mission or the product is a red flag.
“Your north star has to be something bigger than money to succeed,” says Buckley. “People will go through things that test them, but if money is the only motive, that won’t be enough.”
Just like in a marriage, you want to know best how to support and protect your business partner. Understanding what puts each of you in a fight-or-flight mode can be key to getting the best out of each other.
Do you need to be consulted on all decisions, or just major ones? Do you need to be recognized as the leader and sit at the head of the table? Do you fear having to downsize your home if the business fails?
Does a day at the office mean working 9 to 5? Can the work be done remotely and on your own time? If you work well at night and need rapid responses to questions, is it a problem having a partner whose phone goes on “do not disturb” every evening at 7? Having the conversation and understanding expectations is key.
When Buckley started Happy Being, the team learned that one of the partners got up very early. “I had to tell him, ‘We don’t want 6 a.m. calls.’ ”
A penchant for lottery tickets, Las Vegas gambling or high-adrenaline activities like skydiving shows a potential partner’s tolerance for risk and whether that aligns with your own. There will be countless decisions early on in a business concerning risk, and the partners need to be on the same page.
So ask about it. You go into the venture planning and hoping for success, but how much money or time is your partner willing to lose if it doesn’t succeed? How much of their parents’ or in-laws’ money would they bet on the partnership?
Many business partners start as friends. But would you each be willing to give priority to making the right decision for the business, even if it means possibly hurting the friendship? Would you each be capable of letting the other one go if it was better for the company? Most advisers recommend choosing a partner who has a common business goal and letting the friendship build from that, rather than trying to build a partnership on top of a strong friendship.
“Your business partner will be one of your most intense relationships, but it shouldn’t fulfill every role in your life,” says Amy Jurkowitz, entrepreneur and co-founder of branding adviser Bread Ventures. “You need to be compatible in how much energy you will both put into the business.”
A co-founder relationship is a binding agreement with financial and emotional repercussions, just like a marriage. But starting a business has the added stress of having the company—the baby—arrive on day one. If there is a divorce, who gets custody?
The more specific you can be about potential breakups, the better. If you are both putting capital in at the start, would you expect to get that out if you exited? What if, several years in, one partner can’t continue to struggle without a regular paycheck and leaves—and the next year the company finally turns a profit or is bought by another company? Would the partner who left get a share of the money?
These discussions should help make it clear that the survival of the company—and not the partnership or the friendship—is the ultimate goal. Those who have been through a business breakup recommend involving a third party to help sort through these issues at the outset.
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Super isn’t your only option. These smart strategies can help you self-fund a comfortable retirement.
Super isn’t your only option. These smart strategies can help you self-fund a comfortable retirement.
Superannuation is the first thought when it comes to self-funding retirement. Yet it is hardly the only option for doing so.
Just as we have a choice in how and where we work to earn a living, many people also have a choice in how to fund their retirement.
It is possible and sometimes preferable to leave your superannuation untouched, allowing it to continue growing. Some or all of your income can come from alternative sources instead.
Here are some alternatives you can consider.
For many who own their own homes, the equity accrued over decades can eclipse the funds in superannuation. However, it’s theoretical money only until it is unlocked.
Selling up the family home and downsizing – or rightsizing – for retirement allows you to pocket those gains tax-free and simultaneously relocate to a more suitable home with lower upkeep costs.
Up to $300,000 from the proceeds can be contributed by a downsizer to boost your super, and the remainder can be used to fund living expenses or actively invested.
Remember that while the sale proceeds of your home are tax-free, any future profits or interest earned from that money will be taxable.
Semi-retirement allows you to gradually step into retirement. You continue earning income and super while working part-time, keeping a foot in the workforce while testing the waters of your new found free time.
Doing so also offers scope to move into different roles, such as passing on your skills to future generations by teaching/training others in your field of expertise, or taking employment in a new area that interests you and is closer to home.
Retirement from a full-time position presents a good opportunity to pursue self-employment. With more time and fewer commitments on your hands, you have greater scope to turn your hobby into a business or leverage your professional skills and reputation as an external consultant.
Also, for the self-employed and those with a family business, director’s loan repayments from the company are typically tax-free, offering a potentially lucrative source of
income and a means of extracting previous investments into the business without selling your ownership stake.
Rental property income (from residential or commercial properties) can supplement or even provide a generous source of income. The same applies to dividends from shares.
These are likely to be more profitable if you own them well before retirement.
Income that is surplus to your everyday needs can be reinvested using tax-effective strategies to grow your future returns.
A family trust could be used to house investments for yourself and other relatives, building intergenerational wealth.
Trusts allow funds to be allocated to beneficiaries to manage marginal tax rates and stretch the money further, you have control over how income is split between different family members and have flexibility for changing circumstances.
You may not realise the value of items you have collected over the years, such as wine, artwork, jewellery, vintage cars, and antiques.
Rather than have them collect dust or pay to store them, they could be sold to fund your living costs or new investments.
Where possible, avoid selling growth assets in a depressed market – wait until you can extract maximum value.
Part-pensions are not only possible but valuable in making your superannuation stretch further. They still entitle you to a concession card with benefits in healthcare, transport, and more.
Take these savings even further by requesting pensioner discounts with other companies, on everything from utilities to travel and insurance to eating out.
Also, don’t overestimate the value of your assets as part of the means test. It’s a common mistake that can wrongly deny you a full or part-pension.
However, you ultimately fund your retirement, planning is crucial. Advice would hopefully pay for itself.
Understand your spending and how those habits will change before and during retirement, then look to investments that offer the best fit.
Consider a mixture of strategies to diversify your risk, manage your tax liabilities and ensure ongoing income.
Above all, timing is key. The further ahead you plan, the more time you have to embrace additional opportunities and do things at the right time to maximise their value. You’ve worked hard and now is your chance to enjoy the fruits of your labour!
Helen Baker is a licensed Australian financial adviser and author of the new book, Money For Life: How to build financial security from firm foundations (Major Street Publishing $32.99). Find out more at www.onyourowntwofeet.com.au
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