What to Think About When Going Into Business With a Partner
MILWAUKEE, March 30, 2023 (Newswire.com) - Northwestern Mutual: Going into business presents a whole set of challenges, and going into business with a partner brings different questions and details to figure out. Here are seven items to consider before going into business with a partner:
1. Values: Values are the foundation of any business partnership just like any relationship in life. "Shared values are vital, even before working on your vision," says Clay Cooper, CFP® at Clearview Financial Partners, an affiliate of Northwestern Mutual. "They guide decision-making, communication, and overall business strategy. Without mutual values, conflicts and misunderstandings can arise, leading to a breakdown in the partnership. Shared values create trust and can make conflict resolution much easier."
2. Goals & Objectives: "To get where you want to go, you need to know where you are heading," says Cooper. That's why you've got to have crystal-clear goals and objectives that spell out exactly what you're trying to achieve and how you're going to get there. At times, the team needs this even more than the partners need this. Things might change along the way, but having a solid business plan from the get-go is key to staying motivated and focused, and ultimately achieving your shared vision.
3. Communication: Taking the time to communicate openly and honestly is key when entering a business partnership. "Too often, I see people having easy conversations that lead to difficult relationships, instead of having difficult conversations that lead to easy relationships. It's important to address challenging issues head-on, even if it's uncomfortable, to build stronger and more meaningful connections," says Cooper. Partners should ensure that they are clear about what they need from each other to give the business the best possible chance. It can be helpful to discuss differences in communication styles and set expectations from the beginning.
4. Conflict Resolution: Similar to communication, having a plan for resolving conflicts or disagreements when they arise is essential for any business partnership. Early on, develop a process for talking through issues constructively and know when to consult an objective third party. "We hold a standing meeting every Monday to discuss both the challenges and opportunities that arise in our business. Over time, this practice has become ingrained in our company culture, and we've developed a habit of addressing conflicts head-on, with the goal of finding effective solutions and continuously improving. Just like anything, the more you do it the easier it gets," says Cooper.
5. Finances: "Money is an emotional magnifier," says Cooper. Partners will want to understand who is providing what financial resources and how they'll split the profits. Partners may also want to discuss life insurance options to protect the business should one of the partners die prematurely. If the budget allows, it may be worth considering permanent life insurance policies like whole life insurance. Whole life insurance comes with a cash value component that grows over time. Business owners can borrow against the cash value for any reason, including to cover an unexpected cost or finance an opportunity.
6. Define Roles, Documentation & Formalization: Establish roles and responsibilities early on, so that everyone knows who is responsible for what tasks in the partnership. "If you and your partner have identical roles and strengths, this could be a sign this is not the right partner for you," Cooper says. "You want the sum of the parts to be greater than the whole." It is also important to have everything appropriately documented to protect all parties involved and divide ownership formally. Business partners may want to consult a lawyer before starting the business. "A formal written agreement should be table stakes for any partnership," says Cooper. "Handshake agreements very rarely work out well in the end."
7. Exit Strategies: All businesses come to an end with one of the four D's: Departure, divorce, disability, or death. Business partners will want to discuss an exit strategy in case one partner decides to leave the venture for any reason. Setting money aside can help with a planned departure or sudden divorce. Life or disability insurance can be an important part of this strategy if there is an unplanned health event - "which no health events are planned," notes Cooper. It may be helpful to talk to a lawyer and a financial advisor to help develop an agreement outlining how things will be handled if this happens. Discuss with your advisor how whole life insurance can also act as a tool to buy out your partner, acting like a Swiss Army knife for the business and partnerships.
The bottom line
These are just some considerations when going into business with a partner. Taking the time to think through each of these points can help ensure that both parties are on the same page and give the business the best possible chance.
The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value to supplement retirement income will reduce the death benefit and may affect other aspects of the policy.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
About Northwestern Mutual
Through a holistic planning approach, Northwestern Mutual combines the expertise of its financial professionals with a personalized digital experience and industry-leading products to help clients plan for what's most important.
Source: Northwestern Mutual