Monday, April 13, 2009

Starting a Small Business! What's the Most Important Point?

What most people don't realize is that when starting a new business the MOST important point is to decide what you want your ending to be!

Contradictory, right? Not so much.

How you organize depends very much on what you ultimately want to do with your business!

Successful businesses start by imagining their end-goal and then working backwards to decide how they should organize and run their business in order to achieve that goal.

For instance there are a number of completely different end goals you might want:

1. I want to sell my business in five years time and retire.

2. I want to continue in business myself for the foreseeable future without any partners.

3. I plan to start and continue in business with my partner(s) for the foreseeable future.

4. I'd like my children to take over the business and run it when I retire.

5. I'd ultimately like to get equity investors to take my business public.

6. I'd like to sell out my successful business to an investor and retire.

7. I'd like to maximize the tax savings and retirement benefits from owning and running my own business.

All of these are different life goals! And each of them requires a different approach to organizing your business. This series of articles points out the different ways you might organize your business depending on your goal.

Part I - Partners:

If you have a partner or partners, it is most important to decide how you want to dissolve your business NOW! Right at the beginning is when you have the maximum of agreement between you and your partner and you're both excited about starting your new business.

You absolutely MUST have a discussion about what your expectations are before you start operating: Or How Business Litigation Lawyers Get Rich!

I can't tell you how many business owners have come to me with problems with their partners -- and suddenly discover YEARS later that they and their partner had radically different goals and expectations.

Typical Conversation:

Partner A: "I thought we both were agreed we'd run the business for 5 years and then I could retire and turn my share over to my children to run."

Partner B: "I thought we'd both continue to run the business as long as we're making a profit. And I certainly never said I wanted to take on new partners!"

At that point people start arguing and wind up calling their lawyers. Five years into a business is NOT the time you want to discover that your partner expected all along that they would retire and turn their share of the business over to their children! And you don't have the slightest interest in being in business with their children, and now is definitely NOT a good time to have to come up with the cash to buy out their interest!

This partnership foundered because the partners never bothered to put their expectations in writing at the beginning. They just ASSUMED they were in agreement about their long-term goals about selling or transferring the business -- and figured "we'll deal with that stuff when it arises."

So, RULE #1: Get Agreement UP-Front and IN WRITING! What happens if one of the partners dies? What happens if one partner decides they want to sell their interest in five years? In ten? What does your partner expect to do with their share of the business?

If you can't agree now on all the major points DO NOT SWEEP it under the rug! Now, at the beginning is the point of maximum agreement! If you can't agree on major strategies now you never will!

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