Originally published in The Frederick News Post
By Roger T. Sobkowiak Special to The News-Post
You have this great idea for a new business. For weeks or maybe years, you and your friends or family have discussed and developed an idea for a business.
You have completed a rough business plan, tested the idea, gotten good feedback from a marketing expert and developed a company name and logo. You are one step from raising funds and getting started.
Before you take that next big step, however, take one smaller step first and define the partnership on paper. This document should cover personal investment money, roles, time commitment, benefits and an emergency plan. Draft how you intend to work together to build the business.
You should think about money in several ways.
First, it is the seed money each of you will contribute to the business — not just at the outset, but later on and particularly if the business is faltering and needs a shot of cash.
Second, money includes out-of-pocket expenses, reimbursements for supplies, gas, travel and salaries.
Third, it is the profits for the business. Everyone should agree on what each will take out of the business and when. Further, you should decide on things like benefit coverage and whether to seek “key man” insurance.
Decide who will take what role. Will you be co-directors or will one be the CEO and the other the COO?
If several of you are forming the company, how will titles be handed out and how will key decisions be made? Who will have the final decision? If families are potential partners, this question of roles gets trickier.
Time commitment is a tough one. Are all partners leaving jobs to pursue their collective dream to form a company? Will everyone retain their jobs and work on the company in their spare time?
Is everyone expected to work 24/7? What will indicate that the business is growing sufficiently, so one or more partners can give up a current full-time job and start drawing a salary from the business?
Deciding on perks or benefits to offer can be problematic. This can include leased cars, a phone or a computer, medical coverage, a retirement plan, an expense account, a travel allowance, and the location and size of an office.
When a new partner leaves a current job, does that partner deserve a medical and dental plan equal to what he or she had?
An emergency plan can be the hardest thing to nail down, but might be most important.
What will you trim and when? If you are all drawing a salary, do you all take the same cut?
Can one of you return to a job for an interim period? Can one take a promissory note that the salary will be paid up later? This has to be done well before a crisis.
This is not a complete checklist, but it can be valuable for any startup. People who start a business with a friend or family member must not assume that their ability to give their time and money, their expectations, or their ability to contribute are all the same. They never are.
Partners should be explicit about hopes, dreams and commitment to the business up front, and all should discuss and agree on the details to have a successful launch of the partnership. Yes, there might be hard feelings at some point, and in some cases, it can tear the partnership apart and possibly destroy the fledgling company.
Talking about the fallout of disagreements will generally be uncomfortable because in most cases, partners assume they know one another so well that any potential issues will work themselves out.
A simple way to approach the discussion is to ask all partners to take two blank sheets of paper and answer questions that may arise for themselves, compare the completed sheets together, and talk about the differences. This simple exercise will give partners much to talk about and might save the new business from failing before it gets off the ground.
Roger T. Sobkowiak is a certified mentor with SCORE Frederick, formerly known as the Service Corps of Retired Executives. SCORE is a nationwide volunteer network of 330 chapters dedicated to the formation, growth and success of small businesses.
SCORE Frederick provides free and confidential advice and mentoring to startup businesses and to established small businesses. SCORE Frederick offers workshops for both startups and established businesses.