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Work out your divorce before you get married!

As a business advisor, I have advised my fair share of start up businesses where the owners have been friends or colleagues starting as co-owners. I have also sat through many a business dispute between these people who started off as friends, colleagues, and co-owners!

You will be well familiar with the much touted statistics of the large proportion of start up businesses that fail. Yet even businesses that succeed may eventually (and more often than you think) have a falling out between co-owners.

It is predictable that when you are at the beginning of an exciting idea you think it will last forever. Yet, it is also predictable that circumstances will change and the business is unlikely to stay the same. The business may ebb and flow and different people may have different risk tolerances for that ebb and flow. Opportunities may arise and different people may view those opportunities very differently depending on their own priorities.

If nothing else, relationships change with time, emotions change with time, energy levels change with time. Profits and growing wealth (or the opposite!) raise questions never asked at the start of the relationship.

So, when asked what is the single most important structural thing to consider when two or more people start a business together, I don’t say type of entity or share values, I say “write up your divorce papers before you get married!”

The start of a business is the best time to do this because people start with a great deal of shared interest, shared values, and common goals. Discussions around splitting up can be entered into without anger or rancour because you start on common ground. Differences can be discussed and compromised; fair formulae can be set up in the abstract, before the actual dollars get in the way.

Work out how you want to work together, then how you will split up if you do, then go to see a lawyer and document the agreement. If it never happens and you are successfully working together forever, it is a small expense. If however the worse happens, you will thank your lucky stars you made an agreement when you could agree on things!

What do you think? Do you have any war wounds that you can tell about when your business partnerships split up?

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