Yes, I just combined "smart" with "partnership" but I wish more women would listen to the advice of partnership veterans or experts and get smart about why they partner in business. The best of intentions and enthusiasm just don't ameliorate the need for what is basically a pre-nup. In our Ladies Who Launch magazine this month, we dedicated much of it to how to partner successfully, reasonable exit strategies and first-person accounts of how to do it right. Nina Kaufman is one of those people who, ironically, knows enough to know better; which is why it's so compelling to read her blog on what went wrong when she knows everything about how to do it right.
Amy Swift, Editor In Chief, www.ladieswholaunch.com
Confessions of a Business Partnership "Expert"
Here's my background: I'm a business lawyer. Many of my clients are multiple-owner businesses. I draft business partnership agreements regularly. I blog about business partnerships. I wrote a book on how to choose a business partner. I've led teleclasses on business partnerships. My business partner and I had a written partnership agreement -- a pièce de resistance that was worthy of being framed in gilded wood. A recipe for abundant success, yes?
My 12-year business partnership imploded. And I was left "holding the bag" for tens of thousands of dollars. Not enough to sue for -- but enough to rankle.
A business partnership is about two things: partnership and business. Women entrepreneurs look to partnerships for the relationship benefits, not the monetary benefits. As a result, they don't focus sufficiently on the business (money) considerations. Here are my hard lessons learned about money:
1. If you're not earning enough, get out. If your start-up phase exceeds the gestational period for an African elephant, you may have to face that what you're doing, how you're doing it, or those with whom you're doing it isn't working. You must meet your personal expenses. Just as you wouldn't dream of taking a salaried job that underpays you, so your business should not underpay you.
2. Corollary to #1: Know your needs as they grow and change. When I started my business, I was single. By the time it ended, I was married and actively trying to get pregnant. These lifestyle changes gave me a totally new perspective on work, the time I wanted (and could) spend, and the amounts of money I needed to generate to support my family. Your purpose in life is not just that you work for your business -- your business needs to work for you.
3. Become financially literate. If you're reading this, literacy isn't an issue. You may not even remember a time when you couldn't read. But few of us are taught to read numbers and financial statements. In retrospect, I should have paid much closer attention to P&L reports and balance sheets -- and seeking outside guidance to fully understand what they told me. Not looking carefully at the numbers was my way of sticking my fingers in my ears and singing "la-la-la" as loudly as possible to avoid facing whether my business made sound financial sense.
4. Don't let friendship obscure business. This was my Achilles heel. My business partner was a dear friend. When business was tight, he often needed more than the business could provide. As I had more personal financial resources and out of friendship, I let him have what he needed -- after all, how could I say, "no, you may not have the money you need to make your mortgage/car/insurance payment this month"? What kind of person would I be if I let a friend lose his house in foreclosure? But the end result of my largesse was that to keep the business afloat, I either had to forego my draw (that is, rely upon my own savings), or dip into the credit lines I had acquired for the business (which potentially affected my credit). By the time I got my partner to agree to a "money gatekeeper" (such as a bookkeeper), it was too late.
5. Understand -- and don't sugar-coat -- your partners' "money mindsets." How do your partners handle their personal finances? Are they in debt? Have they ever filed for bankruptcy protection? Do they pay their creditors timely? Do they balance their checkbooks? These are clues to how they will handle financial dealings with you. In addition, one partner's bad credit could hamper the entire company's ability to get financing. Finally, how do your partners talk about money? Are they optimistic and prosperity-conscious? Or is there an undercurrent of "I'll never make it"? One of my former partner's favorite phrases was "I'm so broke, I can't pay attention." It took me quite a few years to realize how that mindset influenced everything he did.
Business partnerships are like marriages. Money is the main reason they break up. So be absolutely sure that you and your partners share the same attitudes toward money and financial goals. Because at some point, a business partnership has to be about business to be profitable.
Nina L. Kaufman, Esq. is an award-winning business attorney, author, and speaker. Through both her NYC-based law practice, AskTheBusinessLawyer.com, and as President of her legal information company Wise Counsel Press LLC, she has spent over a decade successfully navigating hundreds of entrepreneur and small businesses through the legal issues that they face in starting and running their own companies.
A prolific writer, she is a regular columnist for Entrepreneur magazine, where she authors the Business Law Advisor column and Making It Legal blog, in addition to her own blog, BusinessPartnershipCentral.com. She has also contributed articles on a wide range of legal topics to publications including Enterprising Woman and the New York Enterprise Report.
An occasional stand-up comic, Nina is a sought-after professional speaker and has given seminars, workshops, teleclasses, and presentations for numerous organizations in the New York area on subjects ranging from business partnerships and collaborative alliances to intellectual property and social media. She has also been featured in the Wall Street Journal, SmallBusinessComputing.com, The New York Law Journal, the American Bar Association Journal, and Entrepreneur magazine and has appeared on Fox Channel 5's Good Day NY program.