Knowing Your Partners
In any business, knowing and trusting your staff can be the difference between a good business and a great business. In businesses based on partners with a share of the control of the business (general partnerships, limited liability corporations, corporations, etc.), that trust is critical to the survival of the business. Before even jumping into a partnership, be sure to consider all the advantages and disadvantages of a partnership and whether or not you need a business partner.
Keep in mind, if you are just starting a new business, your business partner ought to be someone you have known for a good portion of your life. They will become owners of your business, which means your decision process will have to go through them as well. Trusting your business partners and understanding how they are with money is one of the key ways to stop them from splashing too much of your business cash in the first place. There are a few other safeguards that are smart to put into place just as precautions.
When going into business or starting your own business, it is important to research into the legal cloud and red tape that surrounds your line of work. You might be looking at the laws for starting a small business or different local permits. You might even be looking at ways to form your Limited Liability Corporation. Regardless of how you are approaching the legal side, you should always make sure to put legal safeguards in place for any financial expenses.
Depending on your type of business, start with the standard legal documents. For example, if you have a General Partnership, find some general partnership forms and modify them. Then seek out legal counsel to help you review your documents and cover your bases. If you are on a tight budget, seek out advice and assistance from experienced business professionals in your area. There are a number of small business support groups out there that can help. As a disclaimer, make sure you understand that there is no substitute for legal counsel; if you can afford legal counsel, definitely hire a lawyer to assist you. Here are some safeguards that you might want to put into place:
- Ensure all financial expenses for the business must be either in a mutually agreed upon budget, or else must be approved with the consent of at least two partners.
- Ensure all property and business funds are jointly owned and cannot be sold or transferred without joint consent.
- Ensure all partners must be linked on the business bank accounts and finances as mutual account owners.
Banking & Transactions
Almost every business will have a need to open a business bank account. This gives you an opportunity to set some financial safeguards in place. Discuss with your business partner(s), and your banker, the benefits of opening a line of credit for your business. It is always good to establish credit for your business, but at the same time it can be worrisome if you or your partner(s) do not know how to manage your spending and credit card debt.
When opening up the checking and savings account for your business, you will have the opportunity to add your partner(s) onto your account as account owners. Most banks will allow you to designate the percent of ownership for each partner to the business, as well as designate titles for each partner. Be prepared to provide a copy of your business registration as well as articles of incorporation or general partnership agreement forms. While any account holder will be able to make transactions and have full access to the account, most banks will allow you to track which account holder makes which transactions for the account. This is important because it allows you to hold each partner accountable for the actions that they make.
Many banks will also have an online banking system that will allow you to constantly be updated on the status of your business accounts. One of the best ways to keep your partners in check is by constantly keeping your eye on the business. If you have further concerns on expenditures, talk to your banker and see if the bank offers any other precautions or safeguards.
Budgets & Action Plans
Planning ahead is an important part of the success of any business. When done properly, this can also help to rein-in any excess spending by a business partner from the start.
Begin by creating a yearly budget for your business, broken up into fiscal quarters. Put all business expenses you can possibly think of into the budget, and then go through it with a magnifying glass to limit your expenses to the bare necessities. Your budget should be a reasonable reflection of what your business will be making at a minimum, and should cover all of your necessary expenses to keep your business afloat. If your business prospers during a certain period, you can always adjust the budget to increase the expenses. As long as you have a mutually agreed upon budget and your partner(s) stick to spending based on that budget, you will always have a guide to spending that will keep your partner(s) in check.
Another way to keep an eye on finances is by creating action plans. These are short-term plans that are targeted with a goal in mind, and a specific budget set aside to meet this goal. For example, you might say that you want to raise awareness of your business and generate new customers by offering your services at a discounted rate on Groupon or LivingSocial. Your goal is to get 200 new customers and you are budgeting $5,000 for marketing that project. This would be part of a short-term action plan. Action plans that are mutually agreed upon also helps prevent your business partners from spending to excess; just make sure to agree on the maximum spending limit!
Weekly Meetings and Confrontations
If you do not do so already, hold weekly business meetings with your partner(s). This is a great way to keep everyone up to date on what is going on with the business. If your schedules are too busy to meet at one place at a decent hour, then consider holding online web meetings via Skype or another medium. These meetings are also a great way to keep an eye on finances, and to set expectations for business spending.
Regular meetings are also a great way to review the past week, past month, and past quarter’s business expenses versus income.
Planning ahead is always great, but you will always have to constantly revise your goals as well. And if you feel that one or more of your partners are spending too much, these meetings are a great way to confront them about the issue and voice your concerns.