A Smart Woman Learns from her Mistakes...
But a wise woman learns from the mistakes of others. The biggest mistake that anyone can make is remaining vague. It’s scary. When you stay vague you will never hear what you fear. Clarity is what we grownups do. When it comes to the family business that you and your significant one build together we MUST be clear.
It wasn’t that long ago that I was sharing the profits generated by a very successful Plastic Surgery Practice in Beverly Hills. I took care of the business side and my co-owner, the surgeon took care of the surgery side. I wish somebody told me what I’m about to tell you back then.
As you and your spouse are building the business, schedule a time to set up a separate business entity. You do this with a lawyer, not a website. Business entities such as Limited Liability Corporations (LLC) or an S-Corp are commonly used by small business owners to hold the assets of their businesses. The most common use for S-Corps and LLC’s is to help save money on taxes. Speak to your accountant for details.
Whether it's an LLC or an S-Corp there will be shareholders (do see where I’m going with this?). The entity will also have a “Business Operating Agreement” and this details how the business will be operated, who is responsible for what and most importantly who is entitled to what. This prevents one partner from exploiting the other in case their relationship changes. It spells out in plain language how the business operates and how the entity controls the business.
Do this as you grow the business and it begins to get more complicated. More customers, more assets = more stuff that you could lose from a lawsuit. In these cases, it’s the entity that is liable not you the individual, this makes it a must-have.
There is another reason this is a “must-have”. The operating agreement also details how profits are distributed among the shareholders. Even if you don’t still work there, you’re still an owner or shareholder of the entity and the operating agreement will ensure your stake in the business and will protect your finances.
Clarity will protect you when times are good and when they’re not so good. Always be clear.