Starting a small business with family, friends or your spouse is an exciting endeavor. You get to work with a like-minded, trustworthy person who shares the same passion for success as you and build something great together.
Here It Is: Our 2022 Small Business Spotlight
Small Business Spotlight 2022: GOBankingRates Celebrates Small Businesses Across The US
However, even the best relationships can quickly sour if you're not on the same page about the needs of the business. Before you decide to start a business with family, friends or a spouse, make sure you have a thorough understanding of these areas.
Did You Write a Business Plan?
A business plan acts as the foundation for a small business. You may use this plan to set short- and long-term goals for the business, evaluate its feasibility from an objective standpoint and even attract investors interested in investing capital into your business.
Anyone who decides to start a business with a partner should write a business plan with them. Do not write a business plan alone or hide this information from your potential partner. Review it afterward to make sure you are aligned toward a common vision for the business.
Take Our Poll: Do You Tip For Service?
Do You Have a Written Agreement?
Even if you think you're on the same page as your business partner, the best way to protect your relationship and business is with a written agreement. This is a document outlining the roles and responsibilities of each business owner and addressing terms for running the business.
Here are a few key areas every written agreement should be able to answer:
Term: The official starting month, day and year of the business and its owners' involvement in the company. It's also helpful to include termination terms in the event an owner decides to exit the business.
Roles and responsibilities: This is what each owner of the business does on a daily basis.
Capital: The exact amount of capital contributions from each business owner. Additionally, note the account the money is kept in and how and when business owners are paid.
Rules for admitting new business owners: If a family-owned business, for example, decides to expand and allow another member of the family to run the company (or someone unrelated to the family), instructions must be outlined for how the new owner will be admitted into the business.
Exits and death: Outline terms for a business owner's voluntary (and involuntary) withdrawal from the business. In the event an owner passes away, clearly define the surviving partner's rights with the business.
While some of this may seem unpleasant to discuss when starting a business, a written agreement matters for the health of your business and the relationship between its partners. It's critically important to have a written agreement that sets clear expectations from day one on how to run the business together.
Will You Incorporate?
Incorporating a business means choosing an entity formation, like a limited liability company (LLC), corporation or another legally recognized business structure, to protect your small business with limited liability protection. Incorporation also provides small businesses with credibility, allowing them to better build trust with customers and partners.
Talk over your entity options with your family member, friend or spouse before deciding on a structure. If you are uncertain which to incorporate as, it may be beneficial to consult a legal professional for additional guidance.
Will You Open a Business Bank Account?
Generally, the recommended advice for starting a small business is not to co-mingle business funds in any personal bank accounts. You will need to open a business bank account and keep the money in it separate.
Not sure who should open this account or do you have more questions about materials the bank may request before opening this account? Consider hiring a bookkeeper or accountant for additional guidance.
Is There a Succession Plan?
Succession planning is critical when starting a business with family, friends or a spouse. While some of these terms may already be outlined in your written agreement, take the time to meet with an attorney to iron out any remaining details.
Remember succession planning is not always concerned with the worst-case scenario in business either. Some business owners reach retirement or decide to exit to start another venture and succession planning helps determine who assumes responsibility of the existing business moving forward.
Will You Work With Any Other Professionals?
There are several moving parts when running a business and hiring the right pros can be a big help.
Consider exploring professionals you and your business partner may hire to offer assistance such as a lawyer, CPA or accountant and even an expert within your given industry to assume mentorship responsibilities. Reach out to them when you need extra support and know you have a few individuals in your corner who will help your business stay in compliance.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Starting a Business With Friends or Family: 6 Things To Know