When you operate a business with a partner (or several partners), financial decisions can be a sticking point. Everyone involved has a stake in the business, making it important to communicate clearly -- but one partner or another can easily feel that he's better equipped to make decisions that involve money, creating potential for problems. No matter how you and your partner decide to handle money, you do need to sit down and put a system in place.
Communication is Key
You need to touch base with your partners on financial decisions on a regular basis -- but your discussions should go deeper than just whether it's okay to make the next big purchase. You need to be clear about who has any expertise (if any), as well as how to balance the different needs of your business. Ann Campeau teamed up with her brother to create Strut Bridal Salon. She has a background in marketing, while his expertise is finance. Campeau explains, "While we both have MBAs and extensive corporate experience, our decision-making process is rather easy because we don't think we possess the same skill set. In fact, they're quite complementary. Therefore, we literally never fight about how to spend money or which bills to pay. Conversations go like this:
Ann: Bob, we need X, Y, and Z for the store.
Bob: How much? OK, put it on X card.
Bob: We need to focus on paying down X debt.
Ann: OK, I'll hold off on taking new shipments; I'll update our projected cash intake sheet for you."
Not everyone is comfortable in letting one partner -- or even a financial manager hired just for that purpose -- take the lead in making recommendations on next steps. But that's a conversation that needs to happen between you and partner as early as possible. Campeau's system works for her and her brother because of one key factor: "I think the most important thing is open communication. He talks about our money management challenges (bills, cash flow, credit card limits, ohmygod moments, etc.), and I try to give him an idea of upcoming expenses and cash inflows. As long as both partners know where we stand on needs, wants, bills, problems, etc., we've found our system works pretty well." Whether or not you and your partners take a similar approach, communication will always be key.
Don't Sweat the Small Stuff
Even though it is important for each partner to be up to speed on financial decisions for the company as a whole, there are plenty of small, day-to-day purchases that will just slow you down if you need consensus on each one. For most successful businesses, there's a system in place to handle smaller purchases without having to schedule a sit-down that all partners can attend. It makes for a more efficient office and lets the team focus on the big decisions.
Gene Hwang and his partner at Orange Photography have freedom to make small financial decisions without checking with each other. "My business partner and I give each other freedom to spend money on anything below a certain threshold ($1,500, except equipment), but for larger purchases and investments we discuss together and agree before any purchase is made." The approach required a little trial and error on the part of Orange Photography: Hwang notes that prior to putting this system in place, his partner and he were mostly independent when it came to making financial decisions. But they were spending a lot of money and saw a need to touch base on big purchases.
There will always be plenty of big money decisions that go along with running a business. There's no need to seek out more decisions, even if you want to keep close tabs on questions like how many office supplies you need. For most small expenses, there may be the occasional misstep, but you will likely be able to resolve it with a quick chat with your partner before it's repeated.
Let Your Approach Evolve
James Davenport is one of three partners operating All American Martial Arts. Over the course of the company's operations, how these three partners handled money situations has evolved. "We have three partners in our business. Decision-making is pretty easy, we vote... it just naturally developed." The evolutionary process isn't complete, either. The company is moving towards hiring a finance manager. "I think we all believe having a finance manager who can make recommendations to us would be the best method. We're moving towards that. This way, the bias is taken out of the decision making, somewhat... Still, the decision will come down to the partners."
For every company there will be a progression in how you handle any big decision. Financial decisions require changes in how you handle things over time, if only because as you grow, the threshold for how much money it takes to get your attention will change. You may find other opportunities along the way where it makes sense to have one partner step back from management and financial decisions and focus in on something else, or a partner needs to take a reduced role. Many different things can happen that can impact how you handle decisions in your company, and you need to be open to changing your strategy when necessary. It may be worth going so far as to put a date on your calendar every year to check on how your approach to financial management is working for you, so that you can revisit the decisions you've made with your partner and see if you need to make changes to the system you use to handle money.