Mark J. Kohler warns entrepreneurs about three partnership mistakes: skipping written agreements and relying on handshakes, not planning for worst-case scenarios like capital calls or disputes, and ignoring cash flow and exit strategies. A solid agreement drafted with an attorney costs far less than the litigation it prevents.
Chapters
Hi, Mark Kohler here with a two minute tax and legal tip. And let's focus on the legal side for a moment. Let's talk about what not to do in a partnership. Now first, let me tell you, I think partnerships are fantastic. They're a wonderful way to take your business to the next level or even start a business where you can leverage on the skills and assets of other partners to make the business really become a viable option. So I think partnerships are great, but then a lot of people make mistakes in the partnership. So let me give you three tips of what not to do. Number one, make sure that you don't rely on an email or a handshake. And I see so many partners that think, oh, my partner's not going to rip me off or I don't need to go get this formally written up. I've even fallen into the same trap. But this is where major problems can happen. In a lawsuit later, make sure that you have a well drafted LLC and operating agreement. Heck, a JV agreement at the least, or a partnership agreement. Write something up and have it reviewed. It doesn't mean you need separate lawyers in a big fight, but write something up so that everybody remembers what was agreed to at the beginning, later when problems occur. Number two, don't assume that there won't be problems. Life happens, right? There's going to be ups and downs in the business and you've got to talk about those worst case scenarios early on. If your partner is not willing to talk about it, then this may not be the partner for you. So make sure you draft all these things into your partnership agreement. What happens if we need to put more money in? What happens if someone isn't doing their job? What are the issues? What are the options when that happens? Number three, don't forget about distributions. Distributions of cash and profit for paying of taxes or just to get by. Some partners may need a little distribution every month or quarterly or annually to pay the taxes or live. So address that early on so there's not a fight later. And don't forget about exit strategies. What happens if one partner wants out? Or when are you going to sell the business or sell the property within the business model? There is so much to consider and of course this list that I've given you is not comprehensive. There's so much to talk about and this is why getting an attorney involved and drafting it properly could be the best money spent up front when you start a partnership. So don't cut corners. It doesn't have to be an expensive proposition. But go through these issues and more as you work on your partnership. If you thought that information was amazing and helpful, I have so much more to share with you. Please look at the links below and head to my website markjkohler.com you can subscribe to my weekly newsletter. Check out my weekly radio show. I have my online videos for tax and legal strategies that will save you thousands. Ways to learn quickbooks with my fun videos online and also if you enjoyed it, please leave a comment and give it a like and follow me on YouTube. I promise that these videos will change your life. Thanks so much.
