We’ve all heard it before, “don’t go into business with family or friends”.
Well I mustn’t have read the memo too well because I went into business with family AND friends! Overall the experience has been a positive one for over 10 years now but that’s not to say we all haven’t learnt a few things along the way.
In 2005 I went into business with my best mate when we acquired my father’s small, successful business that he ran with a business partner. They were ready to retire and the proceeds of the sale were to be their superannuation.
Within months my brother and brother in law entered the business. The three of them were to work in the business and each of them having skin in the game made sense to me as I was to be the only passive shareholder.
The first thing we did was put together a Shareholders Agreement to set some governance and protect our collective interests in the case of an exit (read problem). Of course controlling an exit was an important piece but being the only shareholder not working in the business, I also wanted to ensure I had some comfort around governance, things like:
- What required unanimous board approval like the cap on a capital expenditure item, cap on services to be agreed to, hiring employees or altering salaries over a dollar amount, etc
- Setting expectations for directors meetings, forecasts, plans, etc
- Creating the process and rules for an exit by a shareholder
It is one thing to have a Shareholders Agreement and it is another to adhere to the specifics with friends and family. This is where conflict can occur especially when you are the only one of the shareholders not working in the business.
It can leave you with a choice to make – dig your heels in and make sure it was followed to the letter OR suck it up a little since they are doing a good job, making money and was it really worth jeopardizing relationships with family and friends over? I chose the latter potentially sacrificing some money each year for the bigger picture (for all of us I might add).
What would I have done differently? The easy answer to this question is “don’t go into business with family and friends” but I don’t look badly at that decision. I should have ensured that every detail of the Shareholders Agreement was followed for the benefit of all of us; after all what was the point of it?
A business needs to be run as a business and when you have multiple shareholders you have responsibilities to each and every shareholder to do the best thing by all. A Shareholders Agreement is constructed to ensure this objective was met and we failed ourselves by not adhering to it all the time.
Would I do it again? Absolutely!
It’s all a state of mind and anything where more good than bad can come out can’t be a bad thing.