This weeks burning question!
“I’m starting a business with a good friend. Do you think we should get some kind of formal agreement set up? We’ve known each other for a long time and used to work together a few years ago. I trust her completely, so I’m thinking I might just see how things go. What do you think, should we bother with a partnership agreement?”
There’s a very short answer to this question; YES!
Consider this. Do you want to build your new business on strong sturdy foundations that will set you up for the future? Or, would you rather build your business on a stinky, swampy bog? You decide!
Yes, it might seem like a pain to get this sorted now, when you’re in the first flush of entrepreneurial excitement. And, yes you may need a lawyer to help you draft an agreement. And, yes it will probably cost you a few quid. But, putting a partnership agreement in place is the sensible thing to do.
A partnership agreement will outline lots of important stuff, like how much money and time you have put into the business so far, what’s expected from each of you, what your responsibilities are and what happens in the event that you decide to close the business.
I know it’s not the cool, glamorous, or creative side of running a business and the temptation is to ditch it altogether in favour of something more fun. I know, because I’ve been there, done that.
OK. I admit it. I wasn’t always the sensible, mature, wise business advisor you see before you today. I’ve made my fair share of mistakes, but things happen for a reason don’t they, and now I get to share my experiences with you. Silver linings and all that.
On one occasion things turned out perfectly fine. My friend Emily and I wrote a book together, called More To Life Than Shoes and then, following on from the book, we set up a network for female entrepreneurs. We started, grew and then wound down our business with no drama whatsoever. And, happily we are still friends to this day. (Lucky really, as we didn’t have a partnership agreement. Oops)
However, I’ve not always been so lucky. A few years ago I set up a business and then as the business grew I brought someone in to help me. We worked together for a trial period and everything seemed fine. Then we decided to formalise our arrangement, but each time I suggested we put an agreement in place, it was dismissed as unnecessary. Alarm bells should have rung. It turned out we were rather different in our approach to business. (If you buy me a large glass of wine, I’ll tell you the full story!)
When the sh** hit the fan and I decided to call a halt to our working relationship, our lack of partnership agreement came round to bite me. It resulted in thousands of pounds of legal expenses, not to mention blood, sweat and tears.
I won’t do that again!
Unfortunately, this kind of saga is not unusual. I’ve come across numerous stories of businesses being unravelled when friends (and sometimes family) end up in dispute. It seems that friendship is not always strong enough to weather the storm.
When things get really messy, business partners can even deny all knowledge of the partnership and insist the other partners was just helping out or volunteering. All of this can be avoided, yup, you guessed it, with a … repeat after me…. partnership agreement.
It shocks me that even more established businesses are working in a distinctly informal style. I met a business woman who’s running a multi-million pound operation with her friend. Out of interest I asked if they had an agreement in place between them; she told me not to worry about stuff like that because they’re really good friends. Hmmm. I wonder if they still are.
So, in conclusion, may I suggest you get this sorted asap. If you can’t afford a lawyer, there are some free templates available online too. It could save you a lot of hassle, money and heartache in the future. Not to mention your friendship.
Have you come unstuck with a business partner? Let me know in the comments below!
photo credit: deathtothestockphoto.com