July 18, 2013
When you start a business everyone is happy and excited about what is going to happen. You get support from you family, friends and potential customers but……it doesn’t always work out and many people struggle to know when to say when. For companies that are partnerships your expectations of your partner can be very different than their expectations of themselves or of you as their partner. There are some important memos you should draft up before you put too much energy into starting up a business. You should write two letters; first your expectations of yourself and the second your expectations of your partner. You and your partner should sit down with only each other and go over these letters together and sign them once you both agree to the terms in the letters. The meeting should be somewhere you can have an open, neutral discussion without any outside influences such as other family members or significant others. If you are looking to start a business by yourself without a partner these letters should be used with your significant other.
The terms outlined in the first letter are commitments you are making to the partnership (i.e. Time, money, “things”). The letter should address what the close up point should be if the business is “not working.” Not working needs to be clearly stated with finite, measurable benchmarks, for example, “We have not had 20 new customers” or “We have not made xxx amount of money by a specific date.” Try to avoid vague commitments because these can be left open for interpretation and the purpose of the letters is to avoid miscommunications that come from misinterpreting the commitments.
The second letter should lay out your assumptions of your partner’s (Or significant other’s) commitments will be. Once again you want this to be clear so they know what your assumptions are and what you may have assumed wrong. This letter, typically, really surprises partners and spouses and even the person writing the letter because assumptions can be perceived by people very differently, especially when you’re asking someone to commit to certain actions. An example is, “I plan to quit my job and my spouses wages will have to cover the household bills for the next six months while we build the business up to the point where I can take a payroll or xxx amount of dollars out of the company.” If your spouse has the assumption that you were going to continue to work while you built the business up you could see how committing to this action and then discussing after-the-fact it could lead to irreversible consequences.
In the table below you can see the elements that should be addressed for each letter:
1.) What I expect of you
· Time you’re going to commit
· Salary or wages
· Resources you’re going to commit
· A commitment to a certain period of time to make the business “Work”
· What I’m relying on you for
2.) What you should expect of me
· Time I’m going to work
· Resources I’m going to contribute
· I will work on the business until a specific point
· The duties I’m willing to do
· The payment I would like and when
These are letters and should not be verbal conversations. Letters can be signed and unaltered (within reason). Verbal conversations can never be referred back to for accountability.
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