Ask the hard questions early
Have you considered the increased risks of working with multiple business owners?
Being in business is about finding a way to work well with others.
This is essential if you want to increase your skills, broaden your reach, extend your creativity or just amplify your ability to deliver a needed product or service to your customer.
It's common knowledge that working with others in your business can accelerate your success.
What's often not talked about is working with others can also amplify your risks.
In this article:
- When you get to make the rules
- Mismanagement by damage control
- Creating your own monster
- Success is not just about beating other businesses – sometimes it involves working with them
- What's a Business Owner's Agreement?
- A lottery nobody wants to win
- In business the numbers above are stacked against you by how many people you rely upon
- Comparing answers and expectations
- Questions that must be answered
- The last word
When you get to make the rules
Business is often said to be a simple process of identifying problems and finding solutions.
The challenge in business is how to best prioritise the structural key business decisions and not just the day to day issues.
In fact there are some key decisions that require a level of patient deliberate focus and consideration, where an on-demand and just-in-time-decision process simply will not work in your best interests.
Your finding a solution-on-demand approach might be adequate for many of the more typical day-to-day problems of business, but when protecting your long term opportunity, the wealth tied up in your business (and your ability to retire from your business), this solution-on-demand approach, will fail you every time. Protection, wealth and retirement needs a pre-emptive approach with some bigger thinking and bigger planning.
In short, it's about managing your business better. But what does that actually look like at the grassroots level?
Simply put: You need to ask the hard questions early.
Business never becomes easier each year - your ability to successfully manage it simply increases. Drew Browne
The reality is difficult times in business are a regular part of life. While no one likes to think about that too much, even fewer people have a plan in place to deal with potential future problems of being in business with other people. It’s time to write your own rule book.
Mismanagement by damage control
Many time-pressured small business owners fall into the habit of management-by-damage-control. Rather than taking a preventative approach to managing the possible future hard decisions, they default to the solution-on-demand approach and miss the opportunity to make life significantly easier by getting their business owners agreement sorted and in place before it's called upon.
Creating your own monster
This deliberate delay in making hard decisions actually fosters an unhealthy level of dread and foreboding about the future. It subtly and effectively undermines your ability to see opportunity and reach for it.
It's no secret that your ability to think consistently and show better management is a significant key to your business success. But just how much value does better management decisions add in dollar value to the economy?
In a 2017 study by Deloitte Access Economics - Westpac Businesses of Tomorrow Report - they made the assessment of what just halving the gap in management effectiveness would represent in dollar value to our Australian economy.
An increase in GDP of around $70 billion would result from halving the gap in management effectiveness between Australia and leading nations on this measure – more significant than the estimated productivity benefit of the internet.
Success is not just about beating other businesses – sometimes it involves working with them
So where do I start?
What's a Business Owner's Agreement?
Think of it like a personalised rule book for your business where the expectations of owners and partners are documented and agreed upon, ahead of time.
- A business owners agreement provides peace of mind and clarity during the inevitable growth and direction challenges of a business. It will also ensure financial protection for business owners, partners and their families is in place if sickness, long-term disability or even unexpected death were to impact your business.
- My company Sapience Financial can help you get this sorted too — along with helping you address other important decisions.
A Business Owners Agreement should include a simple list of answers to a variety of specific questions and should always include a dispute resolution mechanism, should the parties ever come to a deadlock.
A lottery nobody wants to win
These are the Statistical Facts of Life you cannot escape.
- 1 in 3 Australians are touched by cancer
- 1 in 4 Australians will have a long-term disability that will stop them working for at least 3 months
- 1 in 10 Australians will die unexpectedly from accidents or diseases.
- 1 in 20 will become totally and permanently disabled before 65
In business the numbers above are stacked against you by how many people you rely upon
If you don't make proactive decisions about these statistical realities now, you (or your family) could be forced by external circumstances to make hard decisions at the worst possible time. Making these decisions now ahead of time in your business owner's agreement, removes that problem.
Comparing answers and expectations
For those readers who have two or more business owners or partners, I challenge you to each answer the questions below separately; then compare your answers.
- Then if you’re brave, have each of your spouse's answer the same list of questions and then compare expectations.
Every small business needs its own book of rules agreed ahead of time.
Questions that must be answered
If one business owner/director or partner becomes sick or injured and can’t work …
- How long can they be off work and still get paid?
- Is their spouse or partner automatically entitled to take over that empty position in the company and voting rights?
- If they’re unable to work for more than 12 months, would they still be entitled to draw an income?
- Do you have directors Income Protection Insurance in place to cover that risk?
- Can they withdraw funds from the business for medical use andif so, how much and when?
- Do you have Trauma Insurance in place to cover that risk?
- Can they withdraw their personal guarantee from the company trading debts or supplier guarantees?
- Do you have Business Fixed Overheads Insurance in place to cover that risk?
- Who holds the Business Power of Attorney document allowing another person to make decisions for a director who can’t participate in business decisions due to sickness or injury or physical absence?
- What happens if the remaining business owners or partners are not able to buy their partner out if needed?
Asking yourself the hard questions of business early on means you won't need to think much about them later.
How you prepare for the hard questions today, makes all the difference to the future of those who depend upon the stability and success of your business.
The last word
If you’re thinking about adding the task of 'Get a Business Owner's Agreement in place', to the bottom of your never ending to do list — pause and think again.
Give it a priority because your children and your spouse or partner, probably think you’ve already got this sorted and in place.