Money can make or break any relationship - business or personal.?Therefore, before you enter a business partnership it’s imperative you and your potential business partner discuss, up front, the financial commitments involved.
Following are six (6) financial considerations that must be addressed to ensure your relationship with your business partner is a success.
- Capital: Capital is one of the most important financial considerations for any business. Business partners must determine how much capital they will need to start and run the business, and how they will raise that capital. This includes both the initial investment required to start the business, as well as ongoing working capital that will be needed to keep the business running. Additionally, partners must agree on how much capital each partner will invest in the business and how profits will be divided.
- Profit and Loss: Another important financial consideration is profit and loss. Business partners must decide how they will generate revenue and manage costs to maximize profits. They should also agree on how profits will be distributed among the partners. It’s imperative potential partners have a crystal-clear understanding of how the business will generate income and what the expected expenses will be. ?
- Budgeting (and Forecasting): Potential business partners should discuss and agree on a budget and forecasting process - allowing you to plan for future expenses and revenue. Doing this will also provide a framework for making necessary future adjustments while identifying potential financial challenges that the business may face.
- Tax Implications: The tax man always cometh therefore taxes and their ramifications must be considered and allotted for. Therefore, business partners must consider: the type of business structure they will form, how tax reporting and compliance will be handled, and how any profits will affect these structures.??
- Insurance: Business partners must discuss insurance coverage for their business. This includes liability insurance, and property and casualty insurance, which protects the business's assets. Additionally, you need to discuss the type of health care insurance you will be providing any potential team members, and yourselves.
- Exit Strategy: Don’t wait until you, or your partner, or both, plan to exit your business to discuss an exit strategy. Discuss what will happen to the business if one partner wants to leave, or if the business is sold. Having an exit strategy in place ahead of these occurrences will prevent potential disputes and misunderstandings in the future. And believe me, I’ve seen many healthy business relationships turn toxic due to the lack of an exit strategy.
Summarily, we all know money makes the world go round so before entering a business partnership make sure you and your potential business partner discuss all of the above considerations before sealing the deal on the partnership.
Dr. Patty Ann ________________________________________________________
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