A business partner is for the life of your business so choose carefully. If you do have a serious disagreement with your business partner(s) or backer on the running of the business, what do you do? What’s the process to resolve matters? Any split can be hugely stressful and massively costly.
Also bear in mind you spend a lot more time at work than you do with you romantic partner so any fall outs with your business partner can be far worse than silence in front of the TV!
So don’t get carried away with the romance of business set up, think carefully and consider some of these tips.
Your corporate structure
First, if your business is going to be backed by an investor, it’s important to know that the ownership split often has little bearing on who actually has the decision-making power. It’s actually the type of shares involved that usually determines who has the power in the business. You’ll need to understand voting, Class A and Class B shares and their impact on your ownership structure. If you do find an investor, you can bet they know a lot more about this than you so make sure you get good advice before you commit to how the business is set up.
How to handle an offer to buy your business
What happens if one day you receive an attractive offer to buy your business? How might that offer be complicated by shareholders or a business partner? Perhaps it’s time to read up on drag and tag clauses. Drag clauses primarily protect the majority-holding shareholder, enabling him to force other shareholders to sell their shareholdings if he is approached by a buyer and wishes to sell the company. Tag clauses are in place to protect minority shareholders, allowing them to force a sale of their shares at the time of sale (of a company).
‘till dissolution do you part?
If you thought marriage was precarious, just wait until you go into business with a commercial partner! The relationship is very much like a marriage and requires the same amount of commitment; you’ll be working together day in and day out and you need to be travelling in the same direction. What if one of you wants to build slowly and organically, while the other wants to obtain a six-figure investment? What is one of you feels you are earning enough and wants to spend more time on their golf handicap, but the other wants to push on to make serious money. As with all marriages, differences are bound to arise and one party will inevitably always be right! Setting the ground rules early on can save many a partnership, talk over the what if’s and make a record of what you agree it can help a lot putting it in writing if you ever need to refer back to it.
Why do you want to be your own boss?
Freedom to act? Choose your hours? Build something in your own image? Be in control? If you answer yes to some of these consider why you want a business partner.
Why do you need in a business partner?
What do you think you will enjoy in running a business, what are you good at, and most importantly what do you not like or good at? You don’t have to have a business partner to fill in the skill gaps. Business partners are very expensive, but outsourcing your skills gaps can be simpler, cheaper, and you should get a better result.
Often entrepreneurs choose a business partner because they don’t want to be alone, there are ways around that, shared office accommodation or have pseudo business partners, who don’t own any of your business.
A different kind of partner…
Don’t let the above frighten you off building you own business. Fantastic business partners are out there, I joined forces in my first business with Phil Sharp nearly 13 years ago and I can say it was one of the best business decisions I ever made, however I have met a huge number of entrepreneurs who weren’t so lucky.
So alternatively, you could approach a business partner of a different kind. At Davidson Gray, you get start-up, support and business-building services for independent recruiters. Davidson Gray support you in the same way that any partner or backer would do, but without taking an ownership stake in your firm, cost far less, giving you the best of both worlds.
Rhys sold out of his previous recruitment businesses in 2012 to focus solely on helping recruiters set up and build recruitment businesses. Follow Rhys on LinkedIn or contact him direct for help with your start-up recruitment business or for coaching to grow an existing one.