Do I really need a partnership agreement for my business?
Absolutely. Without a doubt. This is crucial for your business for a hundred different reasons.
When partners initially go into business, they are motivated and happy to embark on this exciting new adventure together. At the beginning, they agree on almost everything. These new entrepreneurs believe they will be in business together forever, or until they sell the company for untold millions of dollars.
They assume nothing can or will go wrong. They trust each other so much that they never bother to get a written partnership agreement. What could possibly go wrong in this scenario? The short answer: A LOT!
The reality is, the desires and expectations of business owners change over time. A written agreement can act as a safeguard that protects both the business venture and each partner’s investment. A great partnership agreement, or operating agreement, spells out what happens if the partnership or corporation doesn’t work out. What if one of you gets sick or disabled? What if someone decides to retire? What do you do if one partner isn’t pulling his or her own weight? Who keeps the company name? How do you divide the assets?
Unfortunately, this happens all the time, especially in small businesses. I had one client who ended up in a very contentious lawsuit that went to court, but because she had an signed operating agreement, the court went straight to the books. The agreement saved her. Without it, she would have lost the practice and her clients, let alone six figures in income and assets.
I’m a solopreneur with no employees and no contractors. Do I still need a separate business account?
It’s tempting, right? The company card in hand, at the gas station, out to dinner, or at the store. Is this really a business expense? Probably not. But we tell ourselves, “This is part of being a business owner, the business paying for things.” It starts with a tank of gas, then it’s towels that are actually for the house, but you can always give the old ones to the shop, a laptop “for work.”
Even as a single-person business, you are actually embezzling from your own company without realizing it. For some it’s an occasional thing, for some it becomes a way of life. And the long-term effects can be disastrous if you want to sell your business or even take on partners.
Think of it this way: If you were a manager of “Your Shop Inc.,” would you handle your business finances the way you do? Probably not. You probably would need to show your boss the projected monthly income, the expenses, you’d know how much money the shop needed to make every day and have a plan on how you’d do it. Or you’d be fired, right?
Treating your business like a personal piggy bank can only lead to bad things. But the good news is that we can always correct for that. Admitting your business and/or personal finances are out of control doesn’t mean you’re broke. It means you have no idea where any of it is going. And we can help with that.
