When you go into business with friends or family, do it with your eyes open. Partnering with those closest to you can have many rewards, such as unwavering dedication and implicit trust, but it can also have brutal pitfalls that can cause you to lose both your business and your relationship. Here are some pointers to retain legal and emotional harmony.
Get all of the big stuff in writing. “While informal agreements are easy and comfortable and seem sufficient while caught up in the excitement of opening a new salon, you must remember that contracts are put into place not for the marriage, but rather for the divorce,” says Sean Brownyard, executive program manager for Salon & Spa Specialty Insurance (www.sassiagency.com).
Pen the partnership agreement first. “The key sections will be an arbitration agreement, a dissolution agreement, and ownership percentages, which shows each partner’s capital contribution and indicates how profits are to be split,” Brownyard says. “When trying to preserve personal and family relationships during times of discord in the business, having a well-written agreement can turn what could be a personal fight between partners into a simple clerical matter between attorneys.”
If you’re asking for money from a friend or family member (or are the one loaning the cash), a written loan agreement is critical. It should clearly explain the terms, including the interest rate and the time frame for repayment. “Not paying back borrowed money can sour a relationship very quickly. It’s even worse if the lender feels he has no recourse and he has been used by someone close to him,” Brownyard says.
These documents can be drawn up by a single attorney, according to Brownyard. “Often a family friend who is a lawyer, and who knows the parties involved, is a good choice. They will understand your family dynamic and might use their personal knowledge to customize the contract to your unique family situation,” he says.
If your family member or friend prefers to seal the deal with a handshake only, there are a few tactics you can use to convince the other party that a written contract is in both of your best interests — and that it doesn’t imply any distrust on your end. “If you are borrowing some of your capital contribution from a bank, this is a no brainer. The bank needs it in writing. Crisis averted,” Brownyard says. “However if this is not the case, point out that it protects both parties, and that it is highly recommended by virtually all legal professionals, who have much more experience than either of you.”
While all high value and long-term contracts should be written, some low value short-term contracts with trusted friends or family members can be OK as handshake agreements. For example, you may hire a friend as an interior designer and agree on the payment verbally without causing problems down the road.
One surprising cause of drama can be a salon’s prosperity. “Believe it or not, I’ve seen that success can cause more disagreements than failure when it comes to family-run salons. When healthy profits start rolling in, disagreements can quickly arise,” Brownyard says. “One partner may feel she has done more to make the salon a success, and therefore resent that she has to share the profits equally. There may be disagreements about whether to expand and how to do so. Do the partners pocket the money or reinvest to grow the business? These questions often don’t come up when starting a business but can strain the relationship when they do.” To get around this snag, communicate upfront about your goals, vision, risk threshold, and expansion plans and ensure you and your potential partner are on the same page.
If your friend already runs a successful business and has asked you to come on as a co-owner, make sure you are added to all of the long-term contracts, including the partnership agreement, loan agreement, lease, and to government forms such as the business license. Brownyard says, “The tricky part is coming up with a valuation of the business. The value of the business may have gone up or down since the original partner(s) put in their capital contribution. So if you put in the same amount as the other partners originally did, you will not necessarily own an equal share of the business.”
Avoiding Emotional Pitfalls
Once your contracts are in place, you’ll need to navigate the daily ins and outs of the work environment. Communication and not taking business disagreements personally are key strategies to maintaining a productive business and personal relationship.
Mother-daughter team Kathy Dent and Danielle Lindberg have reaped the benefits of working together for the past eight years. The co-owners of Salon Glow in Reno, Nev., work so well as a team they even answered the interview questions for this article in tandem. “Eight years ago my daughter and I purchased the salon she was currently working in, and it’s been great,” says Dent, who was an office manager until following in her daughter’s footsteps by earning a nail tech license. “We both do nails, but our salon is full service with 15 techs.”
An initial challenge the pair faced was learning to create boundaries between work life and personal life. “Especially at first, there were so many details to pay attention to that every time we would get together it would be all about the salon,” Dent says. “We have learned to enjoy our personal times and not always let work spill over.”
When a business disagreement arises (which both say is rare), each defers to the person with the stronger opinion. And, “if one of us might be feeling overwhelmed, we schedule a time to sit down, discuss the situation, and figure out a solution. Communication is really the key,” Dent says.
Communication is also important when interacting with the other 13 techs on the team. “We are careful to hire people who we feel fit with our vision of how we want our salon to run. Everyone knows they don’t have to be best friends but they have to appreciate each other and be cordial whenever they are in the salon,” Dent says. “If an issue arises, we expect it to be taken care of before it becomes a problem, and they all know we will step in and mediate if they need help.”
Because both Dent and Lindberg see nail clients in addition to running the salon, their direct in-salon interaction with each other is sometimes limited to a “hi” and “bye” in any given day. “But we do very much enjoy getting together, and we try to do it regularly for both business meetings and for personal time together,” Dent says.
Advice they would give to others who are considering working with family or friends is to start with a strong relationship that allows for communication, even when addressing difficult issues, not personalizing things, and ensuring that one partner isn’t so strong that the other is afraid to say what she thinks.
Lindberg and Dent’s salon is evidence that collaborating with friends and family can be a positive experience for everyone involved. They say, “We both think it has been awesome, and we are really lucky to work together, doing what we love to do with such wonderful coworkers and clients.”
Ask These Questions Before Diving In
> Will your family/friend partners help you achieve your business goals?
> What strengths and weaknesses do you each bring to the business?
> Does your trust and familiarity create an advantage?
> If the business fails, is the relationship strong enough to endure?
> If the business succeeds, will you be able to agree on a vision for future growth?
> How will you allocate responsibilities?
> How will you handle disagreements?
> Does your friend have any bad habits (such as tardiness) that may become deal breakers in a business environment?
> How will we keep our professional and personal lives separate?
> What is the plan for when one or both of us wants to leave the business?