* Josh Mehlman
* 1 February 2010
Starting a business with a friend or family member is an exciting time. You're full of optimism, ready to take on the world and already daydreaming
about what to do with all the money that starts rolling in.
Peter Cleary and three mates started up merchandising and marketing company Zinc
in 2004.
"I think it's a bit like buying a second-hand car: if you're working with people who you worked with before, you understand their strengths and weaknesses," he says. "There have been challenges with people over the years, but the benefits outweigh the problems."
This approach was very successful. Zinc now has offices in Melbourne, Sydney, London and Hangzhou, and it earned $32 million in the 2008-09 financial year. Unfortunately, it doesn't always happen that way.
Business advisor Marc Harrison started working with a friend three years ago after they both grew sick of the corporate life.
"I got into a deal where I thought, ‘We're probably not perfect partners, but it'll be OK as long as we both do what's right for the business'," he says.
"The problem is, both partners might have very valid courses of action, but they can't agree on which one to take."
Harrison now runs a solo consulting business and has recently launched Partnership Test, which helps potential business partners find out if they are compatible.
"I want to help partners learn about each other's values and future issues that might come up," he says. "I say, ‘Let's talk about it while we're still friends'."
So what are the best ways to make sure your partnership works?
1. Choose your partners wisely
Most people choose a business partner based on complementary skills.
"Unfortunately, if you have conflicting beliefs and philosophies about business, such as how to treat staff, you will inevitably have problems," Harrison says.
"If I were going to invest in a business, I would choose two people who can work together but don't have a complete idea of what they want to do, over two partners who have a great idea but can't agree on anything."
"Work with people you trust," Cleary says.
"If you can't trust them at the beginning, it doesn't matter how good the business is - don't do it."
2. Document rights, responsibilities and job descriptions
A basic partnership agreement creates an entity for tax purposes and sets out who owns how much of it. However, this provides limited protection if things go wrong down the track.
"[The partners] really need to discuss what each partner is going to contribute to the partnership and how and when they're going to get money
out of it," Anna Kyriacou says, founder of accounting and business advisory firm AKA Group.
"It doesn't have to be a 30-page legal document; it can be a couple of pages.
"For instance, you might have one party that is well off financially while the other is creative. Often they might agree that intellectual property is worth
as much as money - it's called a sweat-to-equity ratio. As long as they document it upfront, you won't have a problem."
"We were probably a bit too informal," Cleary says.
"We had shareholders' agreements and the legal documentation, but we didn't manage expectations of what people would do. We also didn't document performance issues, what to do if people didn't meet expectations. It's very hard to discipline someone or remove them from the business if they're an equity holder."