Will You Be My Business Partner?

Going into business with a partner is a lot like marriage. Finding the right business partner is just like dating. The last thing you ever want to do is jump into a financially committed “relationship” with someone you don’t know well. I’ve made that mistake more than once, and it can be devastating financially and emotionally.

Business partners are going to go through a lot together. That’s just the nature of business. The partnership will be tried, tested, stretched, pulled and stressed to the limit. Therefore, compatibility on multiple levels is crucial. Partners should be comparable in reliability, intelligence, financial stability and character. Those are the four big ones I’d focus on, but there are many more.

Don’t let the excitement of starting a new business cloud your judgment when considering a partner. I’ve seen many people make fatal decisions because of hope and inexperience.

Here are a few pointers for finding and maintaining a good partnership:

  • Family members don’t make good business partners. We’ve all heard it, but most of us ignored it until it was too late.
  • Make sure the risk is split fairly between partners. Financially lopsided partnerships experience even more pressure.
  • Don’t be afraid to run a background check. If I had done that with my very first partner, I would have saved myself a fortune.
  • Ask around town. A person’s reputation can tell a lot about them.
  • Clearly state the goals, duties and expectations of each partner (in writing!) before commencement of the business.
  • Create a strategy to maintain high levels of communication and interaction between the partners. Weekly or even daily meetings are a must.
  • Maintain non-business interactions as well. Periodic dinners and recreational events are great ways to ease any tension that may be present.

Remember that good partnerships can be beautiful while bad partnerships can be ugly and life altering. So tread carefully, don’t rush into things and always trust your intuition. You wouldn’t marry a stranger (I hope!), nor would you enter into one of the most important business relationships of your life without doing your due diligence. This is probaly the most important advice I could ever offer an entrepreneur.

(You can also find this article at MoreThanMary.com as well as more very helpful articles on life, fashion, fitness and travel.)

Break Even Broken Down

earth profit

The break even analysis is something most small business owners and entrepreneurs have heard of. It is a formula used to determine the sales a business must generate to pay off their total expenses. A thorough break even analysis should always be done before entering into a venture.

There are two types of expenses:

  • Fixed Expenses – These are expenses that don’t regularly change each month, even if there is an increase or decrease in production. Rent, utilities, insurance, janitorial fees, interest on debt, permit fees and salaries of full time workers are typical examples of fixed costs. So if production were to slow or even stop, these costs would generally stay the same.
  • Variable Expenses – These are expenses which are tied directly to production and can fluctuate depending on the volume produced. For restaurant owners, raw food costs, hourly labor, paper products and waste are good examples of variable costs.

Fixed costs are much easier to determine than variable costs, so start there. Be thorough, be realistic and be objective. Wishful thinking while doing this important calculation can lead to large losses. Variable costs require careful calculation as they are related directly to production. The raw ingredients, the labor required to combine those ingredients and the costs involved in selling the completed product, in any business, are the most important factors in determining whether a worth while profit can be attained.

So here is the actual equation:

Breakeven Point = Fixed Costs / (Selling price of unit – Variable costs per unit)

That’s it in a nutshell. This simple calculation with help you determine how many units you will have to sell in order to pay your monthly expenses. If you sell multiple products, like in a restaurant, simply calculate the average price and average cost of your menu items.

Two Examples:

  1. Joe’s Pub – It costs Joe $10,000 per month in rent, utilities, insurance and fees to run his pub. The average price of a drink is $5. Joe spends $1 in alcohol, mixers and labor costs to make that drink.  Breakeven -> $10,000 / ($5 – $1) = 2500 drinks. So Joe needs to sell 2500 drinks per month to pay his expenses. If Joe has an average of 50 customers per day who buy 2 drinks each, then he’s obviously in good shape.
  2. Ipodsforsale.com – It costs $6000 per month in hosting, programming, salaries and fees to run the website. They are selling Ipods for $250. They purchase the Ipods from Apple for $200. Most of their customers are generated from Google Adwords, and since Ipod is a competitive keyword, it costs an average of $5 in marketing for every sale. Breakeven -> $6000 / ($250 – ($200 + $5)) = 133 Ipods. So Ipodsforsale.com must sell 133 Ipods per month to stay in business.

But that’s so simple you say. Exactly! But a high percentage of rookie entrepreneurs (and veterans) will not give this analysis the attention it deserves. As a result, they will squander their money and valuable time on a poor business model. This analysis should be on the top of every entrepreneurs list when considering a new venture.

Got Plans? Stick with them…

Business Plan

Today, out of the complete blue, I was contacted by a business associate of mine. He’s about my Dad’s age, incredibly successful, and I actually look up to him and his accomplishments.

So you can imagine my surprise when he called me, embarrassed, asking for help in writing a business plan for an industry I have experience in…the restaurant biz. He told me he wouldn’t get into a business without a solid plan. I could hear the wisdom and experience oozing from the words as he spoke them. Most beginning entrepreneurs don’t understand the importance of that statement.

Create a well thought out, well researched plan, and STICK with it. Be realistic with your projections, maybe even pessimistic. And don’t EVER sell yourself on an idea before considering the realities, pitfalls and weaknesses of it. I’ve made to many bad decisions in business because my judgment was clouded by visions of grandeur and only the good. I suppose you could call it “dreamer’s denial.”

I’ve used business plan writing software, and worked from premade templates which you can find all over the internet. Look for industry average numbers (ex. Labor should be 25% of your gross, etc.) which can either be found from research or contacting someone who has experience in that specific industry.

But always remember…make a plan and follow it. You may have to improvise and adapt, but the core business plan should remain intact. If you wing it, you’re weakening your position and greatly reducing the odds of being successful.

Don’t be a gambler…be a planner…