So you have this best friend, and you both have an interest in the same thing, and you think you would be great business partners.
So the natural step is to start a business, right?
Well, just take a quick step back. Sure, you're right a partnership with your best friend could work out really well. You can split the costs, along with the work, and you could end up moving that business forward faster than you ever dreamed.
BUT.....Not trying to be a negative Nancy, but you could also end up with a failed business and a friendship that no longer exists.
I'm not trying to scare you, but there are definitely things you need to consider along with the preparations you need to make before you jump in with both feet. I talked with my friend Holly Signorelli who laid out five great tips that we can do to set-up the partnership for success.
These are really, really important steps! Just because you think you know someone on a personal level, it doesn't mean you know them on a business level. So really be diligent about going through these steps because it's going to save you a massive headache later on.
1. Know Your Partner
You have to make sure that you’re both interpreting the rules and the plan in the same way. One thing you can do is to put everything in writing, period and do legit contracts. Talk to each other. Have a conversation and look each other in the eyes and explain how you’re interpreting this situation.
2. Respect Your Partner
You don’t want a partner that’s just not one who is only providing the money or one who is only doing the work, but someone who you really respect. Each has to understand and RESPECT the role that the other one is doing. So it’s important you’re both on the same level with each other. Also make sure you know and respect each other's work ethic!
3. Set up an LLC
Whether you do it yourself, through a service like Legal Zoom, or through a lawyer, you must do this to protect yourself! You’ll also need to determine how you’re going to own the business and how you’re going to distribute it. (These can be different). Holly also recommends always consulting with an attorney to help in laying out everything and making sure all questions are answered (and even questions you may not even know you had).
4. Define Your Partnership
Holly makes this one simple by telling us two questions to ask:
1. What are you trying to accomplish?
2. What is the time frame?
5. Create an Exit Plan
It’s best to set-up a partnership where each person has their own company, and there’s a Conduit, which is a flow through entity. So the third entity, really allows you an easy in and out. Then any profit gets split between the two partner’s separate entities. Then if the partnerships decides to split up, the only thing you have to do is close down the conduit because it’s a much easier exit.
More About Holly: Holly Nicholas Signorelli CPA has over 20 years experience handling thousands of corporate and individual clients. In addition to her CPA firm, she is a registered representative of Sigma Financial Corporation. She holds registrations as an Investment Advisor Representative, Securities Broker, and Group One Licensed Insurance Agent and offers a unique perspective on alternative and non-correlated investments. You can find her info at: HollySignorelli.com
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