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Practical articles to help small business owners when selling and buying small businesses.

Buying a business with your husband, wife or partner – genius or lunacy?

Michael Kerr - Wednesday, September 25, 2019

Buying a business with your husband, wife or partner – genius or lunacy?

Uncertain employment prospects and the unravelling of traditional career structures are amongst the reasons small business ownership will become the norm for many Australians. 

When thoughts turn to owning and running a small business it’s only a small leap of faith to consider you husband, wife or partner as the logical business partner.

  • You know them really well. 
  • You trust them. 
  • Why wouldn’t you go into business together! 
Plus, we can have lunch together every day!

It can work really well for some couples. 

When it doesn’t, a bad business relationship can quickly easily damage a perfectly functioning romantic relationship. 

Small businesses fail for many reasons but from my long experience the root cause is often with the people running the business rather than the business itself. 

These people based reasons can include clashing personalities or egos, misalignment on business objectives, unclear boundaries between business and personal life and lack of job descriptions for the owners.  When in a romantic relationship and because you “know them so well” it is even easier to say that we’ll just work this stuff out later or as we go. But it’s a real trap.

To help avoid problems start work on the business equivalent of a pre-nuptial. 

While counterintuitive coming up with an effective and documented business pre-nuptial means actively confronting these ‘people based issues’ and a worst case i.e. the business fails. 

This will require robust discussion (i.e. business-like and unemotional), ideally with a third party involved.

The business pre-nuptial needs to extend from how we share the spoils to cover items like who does what i.e. job descriptions and how and where decisions are made etc. 

An effective third party might be a business coach, an experienced business person or a savvy Accountant. They need to focus both of you on the important issues. 

You also both need to agree to provide that adviser with some form of immunity. Then they are best placed to help you answer the following questions based on what’s best for the business, rather than taking sides.

What skills and resources does the business need for success?
 
From an assessment of what the business needs you can determine if the partners need to bring in additional skills and resources. 

A really natural flow on from these discussions is to agree to document a formal job description for each of the business partners. Ideally they will include some key performance indicators to measure effectiveness in the role. This will help to minimise debate later on about who is actually responsible for what. And it also de-personalises the decision making it easier for both partners to see that combined they may not have what the business needs.

There will be ebbs and flows in business performance and this will fuel emotional responses. Going back to what has been documented can help defuse some of the stress. And if 6 months down the track the role descriptions aren’t working then just change them. As long as you also document and re-agree them you are making good progress.

How decisions are made?

Being in a relationship with your partner provides incredible insight, if you really think about it, on how they make decisions and therefore are likely to make decisions in your new business. 

Understanding their decision making modus operandi is crucial. 

You can learn a lot about how you as a couple already y approach by referring to an everyday example, say deciding on when and how often to clean the bathroom. 

Apparently I favoured an over-engineered approach involving automation (i.e. expensive capital equipment) with over complicated scheduling. My wife on the other hand favoured the ‘use what you have at hand’ and ‘nows good’ approach. In any case we have mutually agreed a satisfactory approach – get a third party to do it! 

We made this simple but effective decision in a business like way by agreeing to set aside time each week to discuss the important personal and financial issues. 

We try to stick to a regular time, do it over a beer and with a simple agenda. That works for us. The point is you need something that works for you. But having a regular time and a simple agenda are essential components. 

The stakes will be much higher when it comes to making business decisions so pre-agreed boundaries and rules for making important business decisions are essential. 

Your experienced third party adviser should be able to help a lot here.

Where decisions are made?

The office environment is usually hectic and the focus is mainly on ‘getting the work done’. Combined that with the partners being side by side each day and you can see why it may not be the best environment to make important and often long range business decisions.

The answer is to find an ‘offsite’ location that is discrete and relaxed. Lock it in to your regular schedule and you’ll start to see a flow on in the form of more effective decision making.

If your office is a home office (and the bedroom shares a common wall with the boardroom) the need to find this ‘offsite’ location is even more pressing. The benefits of paying no business rent can quickly be lost if there is nowhere for the business partners to find a bit of personal space.

One of those 2 sided signs might come in handy on the border of the bed and boardroom – with something like ‘no business talk beyond this point’ on one side.    

The exit plan?

In addition to contemplating business failure you need to consider how one or both of you can get out of the business. 

Even if selling the business isn’t on you radar the chances of one of you wanting to do something different down the track is a real possibility. 

Having and documenting this in the business pre-nuptial makes it so much simpler for that to happen. Having someone stay in the business because they feel that leaving would be dis-loyal or are uncertain on how to raise the issue will add real strain to the personal relationship and be counter-productive for the business.  

The time to have challenging conversations like the above is before you get started in business together. It’s unashamedly about being more business like to preserve the personal relationship.

If these discussions don’t go well then you have learnt a valuable and timely lesson before the stakes get too high.

If they go well (as measured in business terms!), and I hope they do, you are off to a great start. 
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