Many successful business endeavors start out as casual partnerships that eventually bloom into wildly successful companies. Think about Steve Jobs and Steve Wozniak, who founded Apple Inc. in the mid-1970s. Other examples from California include Bill Hewlett and David Packard as well as the McDonald brothers. These partnerships benefited from various success factors, and one of the most important factors is that they were often on the same page regarding finances.
If you plan on conducting business with a partner, you need to agree on several things beyond goals and the overall vision of the enterprise you intend to develop. When it comes to the financial aspect of your business, ask your potential partner the following questions.
How Much Do You Intend to Invest?
The most ideal path to business partnership requires individuals to buy their way into the company. This is also the easiest way to establish how much equity will be distributed. You will need to agree on investment commitments because they will often determine the potential longevity of the business. It is important to be clear on how the investment will be utilized and what each partner expects in return.
How Much Money Will You Personally Need?
Business partners are not exempt from financial needs, and they need to be up front with each other about this common aspect of life. Expectations are different from potential financial needs. You should be able to ask your partners how much money they will personally need over the next 12 months so you can determine if the business will be able to support or complement their lifestyles.
How Much Should We Spend on Insurance?
To get a sense of the risk tolerance levels of your partners, ask them about their thoughts on acquiring San Diego commercial insurance coverage. A partner who suggests winging it without any policies may be too much of a daredevil for your business taste. Similarly, a partner who proposes minimum coverage for the sole purpose of getting operational permits may be too risky for the company.
How Much Debt Should We Get Into?
Small business owners who have limited capital funding options will likely consider commercial loans and other financing options that saddle their companies with debt. When investments and venture capital are not attainable, business partners need to agree on how much debt they are willing to accrue. In some cases, consumer debt instruments such as credit cards can be used as cash infusions, but both partners need to be clear on their repayment goals.
How Much Are Our Efforts Worth?
Once your company starts bringing in revenue and hopefully profits, you must sit down and discuss compensation. Distributing profits according to equity structure may not be sufficient when some partners are actively involved in the day-to-day operations of the company. In this case, a salary may need to be discussed.
No matter what type of business you’re starting, it’s important to maintain adequate insurance, and there are many possible types of commercial coverage you’ll need. At American Tri-Star, we offer affordable and reliable workers’ compensation, commercial auto, errors and omissions, directors and officers, and business property insurance in San Diego. To learn more about our commercial insurance policies, call 619-272-2100 to speak with one of our knowledgeable agents.