For an entrepreneur, finding the right business partner can be very gratifying — revolutionary, even.
You gain a teammate to bounce ideas off of as you grow. Plus, your business can benefit from the unique strengths and talents you each bring to the table.
That said, mixing your interests and resources with another person could be challenging. That’s why it’s important to secure your business together and ensure you’re both protected and prepared for the unexpected.
As you establish your partnership, it may help to ask the following questions. The answers you come across can help you start your partnership on a strong foundation of mutual benefit, trust, and respect.
What happens if your business partner is unable to work?
As co-owners, you and your business partner are both indispensable. But, what happens if your partner has an accident or a critical illness? What if an unexpected event leaves your partner unable to do their job?
Darren Devine is the president of Guelph, Ontario-based Devine & Associates Financial Services Inc. “It helps if the proper key person insurance is in place,” he says. “Then the business receives a cash injection that lets you replace that key partner in a much smoother way.”
This means you’ll have the funds to hire a recruiter to secure a replacement. It can even help cover the cost of any training needed for a new partner or employee. You can also have a buffer for ongoing costs — including payroll — while your business works through the transition. This way, you can focus on moving your business forward without stressing about your finances.
What happens if your business partner dies?
Key person insurance helps you continue to run your business in case of an illness or accident. But, you’ll also need to protect your ownership of the business in case of a death.
Your lawyers may have already written a buy/sell agreement into your business contract. This type of agreement allows you to purchase your partner’s share of the business if they die. Depending on agreement terms, it may only outline the terms of a business sale. In this case, it doesn’t provide a source of funding for the purchase.
So what happens if you don’t have the full value of your partner’s share in your personal savings? Then you might not have the funds to buy their share when you need to. That’s where insurance comes in. “Life insurance can help to protect you, your business and your family,” says Devine. “Just make sure each partner is listed as the beneficiary.”
The right life insurance policy means you’ll have the funding available to become the sole owner in case your partner dies. But what happens if you die? Then your partner’s life insurance policy helps to ensure they can afford to buy out your share of the business. This helps your family maintain their standard of living as well. How? They can use the money from the buy out to help cover any expenses they relied on you to pay. For instance, perhaps your family depended on you to cover a portion of the mortgage or rent. Or, maybe your kids relied on you to help fund their tuition years.
Are you and your business partner on the same page?
You and your business partner may have shared values and goals. Still, it’s important to make sure you’re on the same page about your goals and how can achieve them. “If you want to go somewhere you’ve never been before, you need a map to get there,” Devine says. “The financial plan represents a map for the business owner.”
In the early stages, an advisor can help you create a plan that aligns with your business goals. This way, both you and your business partner will be working toward the same objectives — reading the same “map.” This, in turn, will help you work together most effectively.
And as your business grows, your advisor can serve as a sounding board for making more complex decisions. For example, you may want to learn more about the latest small-business tax deductions. Or, you may want help separating your business and personal finances. “A trusted advisor can walk you through your options,” Devine says. “So you and your business partner can weigh the pros and cons as a team. This will also help you navigate the fastest, most efficient way to grow your business together.”
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*This article is intended to provide general information only. Sun Life Assurance Company of Canada (Sun Life) does not provide legal, accounting or taxation advice to advisors or clients. Before acting on any of the information contained in this article, make sure you seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.