Andrea Henry | | Canadian Small Business Women

Done correctly, going into business with a partner can be a great way to grow quickly as each partner brings expertise or assets that the other party is missing but which are crucial for business success. Yet, according to some studies, 80% of business partnerships fail. When you consider that the failure of a business partnership can often lead to loss of valued relationships, financial struggles, lawsuits and even complete business failure, those are eye-wateringly bad odds.

So, how do you beat the odds?

Get on the same page

If you’re starting a business together, don’t jump straight into setting up the bank account and buying inventory. Spend a lot of time (I’m speaking about days if not weeks) mapping out what your business will look like. What are the business goals? Timelines? What is your vision for the business and what it will take to achieve this? What is the sacrifice plan? When will you increase your team and how? What is the exit plan?

Skipping this step can be disastrous. If you plan to build a large business with 10 locations across Canada and sell it to your largest competitor in 7 years for $10 million and your partner is content to stay small as long as she can make $72,000 a year from it, your business partnership is not going to work out and it’s best to know this before you invest your energy and money.

The Devil (and the Lawsuit) is in the details

The big picture is crucial but it will remain an unfulfilled mission statement on a wall somewhere if you don’t nail down the details. Having a clear, detailed plan can often be the only thing that allows you to ride out changes in the market and in the emotional state of the partners. Before you get started:

Establish the objectives and expectations of each partner;
Determine each partner’s contribution in terms of funds, skill and time;
Complete an organizational chart, even if right now it will only contain two names- yours and your partner’s, and assign the jobs each partner will have. This is often the most difficult part as someone has to be the Managing Partner.
Form evaluation objectives and plan ways to monitor and assess performance;
Decide on a procedure to resolve problems when there is a serious issue e.g mediation or arbitration.

Map out Your Mutual Expectations in Writing

Now that you know where you want to go in your business and how you plan to get there, step back and think about the roadmap for the relationship between you and your partner. Before you visit a lawyer (more on that later), you and your partner(s) should take the time to draft your version of a partnership agreement. This will save on legal fees as it will allow you to experiment with different structures and solutions on your own, get a clearer idea of what you need to address and distinguish business issues from legal issues. The more work you have done before stepping into your lawyer’s office, the more useful and less expensive your agreement will be.

Get Professional Advice Early On

I know you wouldn’t start a partnership without legal advice! A business lawyer who has helped form partnerships before can help you assess your draft agreement and determine how realistic and beneficial your wish list is. She can also help develop your negotiation strategy including determining what you should ask for and when.

You should also have a consultation with an accountant who will be able to give you advice on how to make a budget, manage revenue and minimize tax liability.

Trust Your Instincts

A wise person once said- “Always trust your gut. It knows what your head hasn’t yet figured out.” Sometimes, a partnership looks great on paper but something just doesn’t add up.

A former client had the opportunity to join a business started by a husband and wife team which had strong financials and an expanding client base but in her meetings with the husband, she just always felt uneasy. Still, she thought she was being unduly sensitive and decided to go ahead with the partnership on the expectation that she could do really well financially. It turned out to be a disaster. The husband was a manipulative creep who consistently undermined my former client and then tried to force her out of the business without compensation. During that period, every time I spoke with her she expressed how upset she was, not so much with the partner, but with herself for ignoring her gut.

So, by now you’re probably thinking that you need to have a long chat with your partner but you’re wondering how to raise the subject without causing a rift. I’ll discuss that next month.

Andrea Henry

Vox Law LLP

The Law Firm Built With Love for Small Business™

T: 416.639.6235

E: andrea@voxlaw.ca

W: http://www.voxlaw.ca

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This article is made available by Andrea Henry of Vox Law LLP for educational purposes only and not to provide specific legal advice. By reading this article you acknowledge that there is no solicitor-client relationship between you and Andrea Henry and/or Vox Law LLP. The article should not be used as a substitute for competent legal advice from a licensed lawyer.

Let’s start off by admitting that as much as we love what we do, as small business owners, we do this to make money.

Let’s also admit that we have clients who have not really grasped this concept and who Just. Don’t. Pay. Us. On-time- or at all.

How do you deal with it? As always, prevention is better than cure. Here are my top three tips to getting paid on time.

Get it in writing.

Relying on verbal agreements and handshakes is for amateurs, and you my friend, are a professional with bills to pay. State your fees and payment terms in writing so that you avoid misunderstandings about payment expectations. Your written contract should also include, at a minimum, a Scope of Work Clause which is a very clear, very specific description of exactly what you are going to provide to the client and a Cancellation Clause which will tell your client if and when they can cancel and what, if anything, they will still owe you after cancellation.

Make it super convenient and easy to pay you

In your initial meetings, ask the client what works best for them in terms of timing of invoices, credit terms and payment type. Instead of just accepting cash and cheque, consider accepting credit and debit cards, online payments, direct deposits and email transfers. Paypal, Square, Quickbooks and Freshbooks are just a few companies which allow you to send invoices that clients can pay with just a few clicks.

You remain in control of the decision but by involving the client in the process and by being flexible in response to her needs, you make it more likely that the client will pay you on time.

Create a structured, well-thought-out procedure for collections

Even with the most rock-solid contract and convenient invoicing systems, you’ll still occasionally have to deal with a client who doesn’t pay on time. When creating your collections system, think about:

How often you will remind your client to pay the invoice eg. every week, every month, every quarter and for how long will you send those reminders
Whether to add interest to the outstanding amount after a certain number of days have passed (pro tip- you should add interest because it acts as a deterrent to long delays in payment)
What escalation will you use if the client still doesn’t pay- eg. send the matter to a collections agency, retain a business lawyer or take the client to small claims court
How important is the client to you- using a collection agency or starting a court action often leads to a permanent breakdown in the relationship.

The first time you ask a client to sign a contract or you send out a collections letter may be nerve-wracking. But remember, while you might be new to this entrepreneurship thing, you definitely are not new to the service or product you are providing.

By insisting on a signed agreement and a collections policy that protects your ability to get paid, you signal to the world that you take your business seriously. When you take yourself seriously, guess what? Your clients take you seriously and serious people get paid.