Editor's Note: Dear Bonnie is our truth-telling advice column from Bonnie Siegler. We hope you enjoy it as much as we do, and invite our readers to submit their questions directly to: [email protected]
I fancy myself a well-organized, put together person and have been working professionally for a very long time. However, when push comes to shove, I'm a graphic designer — not a businesswoman. And, given the recent harrowing situation of a certain collapsed type designer “partnership”, I want to make sure not to enter any business agreement with a fellow designer lightly.
My future partner and I started by doing the things people said we should — we agreed we’d go have a nice lunch together, discuss our concerns honestly, order a bottle of wine if we had to. And then, just like a really bad first date, we couldn't think of anything to say. So, we hired a lawyer, thinking, hey lawyer, you've seen everything and anything (including his own partnership go south), so you must know what to do. We asked him what we should be afraid of, what we should expect in the future, and how we should write it all up.
Thousands of dollars later, the lawyer sent us a document suggesting that each of us should have seven sick days a year. He didn’t have much else to say.
So, dear Bonnie, what do you think we should do? What should we put in writing?
Partnering in Peoria
When starting a partnership, a business by yourself — hell, even a romantic relationship, for that matter — it’s always a good rule of thumb to hope for the best and plan for the worst. You really do need a (better) lawyer to write up an official legal agreement between the two of you, one that you both sign at the same time, ideally together, and as soon as possible.
In the meantime, here are three suggestions for topics on your next “date” with your future partner. It is imperative that you agree on a plan for these issues and others like them when emotions are not running high and they are still hypothetical. If a bottle of wine makes it easier, go for it. It can be much more difficult to be reasonable when it’s “real”.
1. Assuming you will be equal partners, this means that you will both have access to the company bank accounts. One day, one of you might need to take some money out for something important. You could decide now that there is no dipping into the account: that money is there so that you can draw salaries (and bonuses!) and agree to expenses and business needs. Another, perhaps more understanding option, is that if one of you has to withdraw funds, there needs to be enough in the account so that both of you can do so at the same time and for the same amount. Either way, this assumes no hard feelings or fights because you will have already agreed, both of you, to these conditions.
2. What if one of you gets your dream job offer and wants to take it? Whether this happens in six months or in five years, it will be just as disruptive for each of you. Discussing the possibility of such fallout now means that you both have to be fair — because, quite frankly, either of you could end up in either position. What will happen to the business, the clients, the archives, the space? What about work that you both have already done, or have committed to do? How will you split the proceeds of work begun by both partners, but finished by only one? The ideal solution here is that you will be able to separate on good terms and still remain friends, and that only happens if you have agreed to things in advance, on paper.
3. Horrifying to consider, but what happens if one of you becomes disabled or, for whatever reason, incapable of working? The remaining partner will, under these circumstances, be left with twice the work. One way of preparing for that disaster is to talk to an insurance broker now about something called "key man insurance”. Essentially, this will allow you to bring in help to get the work done in a timely fashion, while your partner still gets to draw a salary. Because you will have agreed to this in advance — and in writing — it will go as smoothly as possible.
Peorians, this is just the beginning. A (good) lawyer should be able to help you by proposing even more what-if scenarios — and give you your best options, too. It is well worth the investment to do it right now: alternatively, it could end up costing you both a great deal more, both emotionally and financially, if these kinds of problems arise later on. Put it all in writing now.
For past Dear Bonnie columns, click here.