How much money are you planning to pull out of your company this year?
If you own your business outright, the decision is yours, but if you have one or more partners, things can get a little dicey, says Jordan Dolgin.
Dolgin is a Toronto-based lawyer who specializes in business law and has seen many business partners fall out. In one example he recounted to me, two partners had vastly different ideas about how much money they wanted to take out of their thriving business. One partner had a healthy appetite for the finer things in life and wanted to claw out most of the cash to fund his ever-growing lifestyle. The other wanted to leave most of the cash in the business to fund new projects and provide a safety net. Their difference of opinion escalated into an all-out war. They stopped talking and eventually couldn't even be in the same room together.
Finally, the more conservative partner asked their banker to change their account so that both partners had to sign all company checks. This move caused the bank to lose confidence in the business, and their credit line was pulled until the partners could work out their differences.
Like with all marriages, it's better to size up your partner before you commit. Here are three ways to evaluate your potential business partner:
1. Go to lunch
Watch how your potential partner treats your server, and you will have a good idea of how he or she will treat your employees.
2. Compare your numbers
Ask your potential partner trade-off questions to evaluate their need for financial reward with their lifestyle aspirations. Once the business gets going and the profits start rolling in, how much money do you need to be happy, and at what point is an extra week's vacation more important than the next $10,000 in personal compensation?
3. Look in the parking lot
Compare your potential partner's current spending habits to yours. In particular, get a look at the car he or she drives. A car is the ultimate expression of the image we want to display to the world. If your potential partner is driving a Porsche, and you've got a sensible sedan, consider this a reliable bellwether of problems to come.