NORTHERN TAX & FINANCIAL SERVICES
What do you need to create a successful family partnership?
One of the first questions to ask yourself when going into business with a family member is whether, if you weren’t related, you would honestly go into business with that person? Same family does not mean same mindset, nor that you will automatically be well-matched to be in business. Trust your instinct. Any gut-feel negativity needs to be addressed.
We all know certain personality types are destined to not get along, so are you 100 per cent certain that this person is someone you get along with and respect? More importantly, will they respect you and your opinions? In my experience as an accountant, the greatest cause of disagreement in family businesses is miscommunication, often bred from ignorance. Like any relationship, your business relationship must be built on good communication and trust. This involves being open to discussion about all topics, even the difficult ones. It also involves being honest while remaining respectful towards differing opinions. Both parties need to reassure each other and look out for one other as much as they do for themselves.
Treat your family business partner as you would an independent person. Hold formal meetings, have open business finances so all parties can see how the business is tracking, and discuss goals and plans without independently acting or doing things alone that can affect the business. In agreement matters, both must be certain that the decision at the time was right. It’s no good agreeing that you understand, only for your partner to find out you didn’t have a complete understanding at the time a major decision was made. Be sure to understand the entity structure and what needs to be done at every level.
Likewise, respecting the professionals who give you advice is crucial. That doesn’t mean you must do everything they say, but giving them due respect and listening is not only courteous but commercially sensible. Discussing their recommendations with your business partner before dismissing them out of hand is vital to smart commerce and a solid business partnership.
Each person has their own traits and skills to contribute, whether they be technical, financial or operational. To maintain a level of equilibrium, each partner must put in their fair share of value to the business, or resentment will build and cause issues. Where there are voids in areas of need, consider employing a third party to cover this.
Discuss a Partnership or Director’s Agreement. This sets the understanding, expectations and ‘rules’ for what will happen in the business while it operates and, just as crucially, what happens if it isn’t working and you’re looking to wind up the business. After all, ‘business is business’ but family should always remain family, without silly disputes and ignorance becoming an issue. Along with the agreement, you will need to work out things such as who controls the bank accounts and who is responsible for maintaining the business administration in a fair and equitable way.
Another important consideration is a ‘Buy Sell’ insurance arrangement, which may be required to assist if one of you pass away or become incapacitated for an extended period.
Successful family partnerships survive if a certain level of decorum is sustained, particularly when emotions and stress levels are high. This is why running a business with the most suitable partner is essential to your continuing success. And why partnering with the wrong person can often be a recipe for disaster.
The information provided is general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of a qualified advisor before you make any decision regarding any products mentioned. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly Northern Tax & Financial Services Pty Ltd employees or agents shall not be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.