Taking on a Business Partner (part 2) – guest blog from Laura Schmitz at the UW Milwaukee Small Business Development Center (Read part 1 now.)
Taking on a business partner is like a marriage – easy to get into, difficult to get out of, but often a union made in heaven. Both parties can benefit greatly from the union. There should be dating/courting, the pre-nup, and then the marriage.
THE PRE-NUP – Laying out the guidelines for who gets what during and after the marriage
Step C: Roles in the potential partnership1. Level of authority – What level of authority will each of you have, corporate, operations, financial? Are you willing to give up your current autonomy?
2. Decision making – How will decisions be made and by whom? Will the new process impair decision making cycle time?
3. Management duties – Who will be responsible for what parts of the business, financial, HR, Operations, Sales, Marketing?
4. Operational duties – Who will do what operation functions, e.g., sales, quality control, scheduling work force?
Step D: Disclosures (should have a formal non-disclosure document signed first)
1. Financial statements for last three years
2. Compensation criteria (if S Corp)
3. Legal documents, e.g., loans, long term leases
4. Business plan
5. Marketing strategy
6. Long term goals for company
THE MARRIAGE – Say “I DO” and sign on the dotted line
Step E: Agree to and document following (qualify and quantify)
1. Key Performance Indicators (how success of the business (and the company) will be measured).
2. Decision making and dispute resolution processes (If the two of you can’t agree, who can be an impartial third party?)
3. Officer positions (Who will be the President…?)
4. Management responsibilities (Formal titles and job descriptions)
5. Operations responsibilities (What operation functions each will have responsibility for and what metrics will be used to measure performance)
6. Vacations, time off policies (can you both be gone at the same time?)
7. Compensation (What will pay be based on, how much, how often)
8. Exit strategy (one partner leaves, close business, sell business, buy/sell agreement, etc.)
9. Formal partnership agreement, if necessary
10. Corporate documents, if necessary (shareholder resolutions, Board of Directors resolutions, banking authority, S Corp election, LLC Operating Member Agreement, etc.)
Not everything needs to be contained in a legal document created by a lawyer, but most everything should be written down and co-signed by both parties, indicating concurrence. Both parties need to feel that due diligence was done in stage setting a possible partnership.
Watch for my next Blog – “Do you really need a Business Plan?”