Thoughts on Law and Life

The Official Blog of Astrab Legal Services LLC

Starting Your Own Business Series: Family Buy-In

I am concentrating my law practice on small business consultation – I want to see small business thrive, as I believe that these companies are the life-blood of our economy. My goal is to help start-ups and existing companies get off the ground and make it through the current economic crisis. An attorney should be a crucial part of your business – it is folly to rely on pre-printed business forms or software to handle your legal needs. These documents may get you going, but it is very easy to make mistakes along the way that ongoing consultation with an attorney could have avoided. The role of a business owner is to run and grow his or her business, be it a single-person company to a multiple employee enterprise. There is no reason for a small business owner to be reviewing or drafting their own contracts, drafting employee policies, negotiating deals and/or leases and handling other matters that an attorney could easily take on and free up the owner’s time to market the business.

I am starting an in-depth series on starting up a small business. Today’s topic will be short but is one of the most important concerns – ‘buy in’ from a spouse or significant other. If the life partner of a prospective business owner is not on board, the business could not only be jeopardized from the start, but the relationship could become damaged as well.

Taking on a small business will definitely mean family sacrifice. If the prospective owner is giving up a salary to get started, the family will be missing that income until the enterprise can get up and off of the ground. In addition, the ‘burn rate’ of the family’s cash will also increase as necessary start-up costs are introduced into the family’s already weakened budget. I will use a spouse as an example in this article, but long-term non-marital relationships are also extremely relevant as well.

What are the issues that need to be discussed? Here is a laundry list that barely scrapes the surface:

  • Type of business to be started: Is this a business that the prospective owner is familiar with or is this a completely ‘out-of-the-blue’ venture?
  • Funding for the business: Will the money be coming from savings or will a line of credit be sought?
  • Liability issues: What is the potential impact upon personal assets should the business fail?
  • Business plan: What is the structure of the business? What is the time frame to reach profitability? How will the business attract clients/customers?
  • Location: Will the business be run out of the home or will an office be necessary?
  • Time commitment: How will the business affect the prospective owner’s ‘at home’ time? Will responsibility for family activities be placed on the spouse?
  • Role of spouse: Will the spouse have a place or say in running the business? If not, why not?
  • Income replacement: How will the lost income be replaced in order to keep the family solvent? When will the prospective owner ‘cut loose’ from his or her salary to devote full time and attention to the business?

I could go on for pages with talking points, but I think this list can serve as a starting point. A key is total transparency with the spouse – the prospective owner cannot hide problems from his or her spouse and communication must be constant. An idea would be to schedule monthly update meetings with the spouse to provide specific operational details regarding the business. If growth is shown, it might make a nervous spouse a little more at ease with the situation.

An attorney meeting with the prospective owner and his or her spouse can go a long way in achieving buy-in. If the spouse knows that there is a third party, especially one geared to help set up and protect the business, on board, it could help calm fears. My practice would assist the family with addressing the above questions, working on setting up a family budget and staying on board to assist with ongoing business issues.

Bottom line: Do not walk in the door one evening and tell your spouse that you have quit your job and started a new business. Utilize total transparency and make the spouse a partner, either direct or indirect, from day one. Without spousal Buy In, a start up is damaged from the onset…don’t make this mistake!

I am available for consultation on these issues. Please do not hesitate to contact my office at (216) 577-0013 to set up a time to get together and discuss starting your own business. After meeting with the prospective owner, the next step would be to set up a meeting with the spouse and go over the business planning issues that have already been covered and address questions/concerns from the spouse.

If you are considering a start-up, get planning, but do it smart!

Michael K. Astrab is the principal attorney for Astrab Legal Services LLC, a general practice law firm located in Cleveland, Ohio. He may be reached at (216) 577-0013 or via e-mail at astrablegal@sbcglobal.net. This blog is designed for informational purposes only and does not constitute legal advice.

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February 16, 2009 Posted by | Financial, Law, Legal, Life, sales & marketing, small business | , , , , , , , , , , , , , | Leave a comment