At OBT we know how common it is for people who have a shared interest to leave the relative safety of being employees, nut out an idea on the back of an envelope and then start operating a new business from humble beginnings.
As with most emerging businesses, activity is frantic in the first few years and funds are tight, but the germination and subsequent realisation of the idea spurs enthusiasm and the business takes off.
Aldous Huxley once famously described this by saying;
“They intoxicate themselves with work so they won’t see how they really are.”
While there are some people who work well together in business, our experience tells us they are rare. Of the numerous business people we have the opportunity to know and advise, few are real entrepreneurs when we first meet them. With time, the vision becomes clouded for many. The zest for the chase gives way to an easy existence. Exhaustion is common; priorities change.
Surely you can ride through it if your business partner or co-director is as like-minded and ethical as yourself, right? Sadly this is not always the case and once, where a verbal agreement or hand-shake meant something, in a world where you can have your employment terminated by text message these days, we need to change!
The importance of having a water-tight business ownership agreement can be highlighted by an example which came to light recently:
Two business partners, one nearing retirement and the other mid-career, made a verbal agreement that one would supply their business and the other would sell to market. This worked well as the older partner conducted his business from a home office some 200 kilometres away which allowed him flexibility and stepping back at his time of life, yet still generated an income.
The older partner took the younger partner under his wing and introduced him to his own suppliers. Then, seemingly out of nowhere, the younger partner mentioned in a telephone conversation that their joint arrangement was over despite the older partner having loaned his younger partner a six-figure sum to buy into the business.
With the loan still outstanding, repayment uncertain and business income abruptly halted, the older partner has been forced into downsizing or relocating his home until such time he is repaid… or not. He is in limbo thanks to not having a formal business ownership agreement in place. As the older partner is ‘old school’ he believed a hand-shake would suffice and was binding.
We can’t shake our heads or tut piteously at these matters. What we think might be a sound arrangement can very easily come unstuck in the future if there is no formal recourse. Worse for the business owner with his mental ‘what if-ing’ which has been on constant replay ever since the incident occurred.
OBT’s Director Brett Garmeister says, “Most cases are avoidable if owners seek professional advice during business start-up, or as part of a regular review process for established businesses”.
Any time is a good time to review your business circumstances including ownership issues, so contact OBT to review yours or to obtain a second opinion.