(Please understand that the answers to these questions are general in nature and may not cover every individual situation.)
- “It is much easier to get a business partner than to get rid of one.” Choose wisely. Draft documents at the beginning of your relationship, when you like each other, that spell out exactly what is required of each member. Many businesses fail because the owners each had different perceptions of what was expected of them when the company was organized. That includes the process which describes how a partner is bought out or discharged from the company. These types of things are typically found in the corporation Bylaws or LLC Operating Agreements. When you create a new company on-line in Utah, these documents are not included. This is the part of the set-up that really requires a knowledgeable lawyer to get things set up right. Using someone else’s Operating Agreement is kind of like using someone else’s underwear–it might work, but why take the chance to save a few hundred dollars? If you don’t draft an operating agreement, the state has already done that for you. Did you know the new LLC act gives all members equal interest in the company, regardless of what you orally agreed to? That means even if you have put in the money and the work and have a couple of minor members with small percent ownership, it won’t matter if you don’t spell it out in an operating agreement?
- A corollary to the above rule is “make friends out of your business associates; don’t make business associates out of your friends” (and family). It is much easier to sit around the Thanksgiving table if you didn’t just fire your brother-in-law. Family businesses can thrive, but can also flounder when family politics gets in the way of running the business. This is another reason that a detailed Operating Agreement with duties spelled out for each officer is a good idea.
- “Pigs get fat, hogs get slaughtered”. Don’t be greedy, share the wealth, work on a fair profit margin and be happy. If you can keep things balanced, you stand a much better chance of being successful. Businesses often fall apart when one owner believes he should have a bigger share and so tries to squeeze or intimidate the others.
- ” Outrageous profits lead to ruinous competition.” Yes, Amazon was amazing when it started and it is doing well, but the largest IPO in history just happened when a competitor, Alibaba, went public recently. If you have just developed a better mousetrap, good for you. If you think you can kick back the rest of your life, think again. There are always many small business owners looking to make a profit and, if you don’t keep a step ahead of them, they will overtake you.
- Finally, “just because you have a great idea, the world doesn’t care.” So you have an awesome idea, now is the time to hire professionals to help develop it. It is a cut-throat world when profit is involved, don’t assume you can master everything overnight or by yourself. What often happens is that you will end up selling your idea to a big company in your industry for a small percentage of what it is worth, as they outmaneuvered you–cause they will be using the smart professionals. Getting advice from attorneys and other professionals, and hiring sales and administrative officers will put you on a better footing as you enter into the tough world of competition and profits.