Brass Tacks



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Q. I and three of my co-workers are forming a partnership to pursue a good business opportunity. Each of us is contributing something different in terms of money and expertise, and each will provide different inputs once the business is operating. How can we recognize our differences in terms of divvying up the profits if there are four equal partners? A. As we indicated in a previous column, it’s important to recognize that an “equitable” partnership does not require that all partners be “equal.” A formal partnership agreement executed by all of you can spell out the required contributions and the relative entitlements of each. In most states the law requires co-equal participation only in the absence of an agreement to the contrary. Therefore, your partnership agreement can stipulate who will get what in terms of equity in the venture and on-going profit allocations. The distribution of losses, if any, can also be pre-determined in this manner. In fact, the agreement can be structured so that a partner’s percentage participation in losses can be greater or less than his participation in profits. This might be helpful in cases where one partner can make better use of a tax loss. It’s important to note that the allocation/distribution formulas used in a partnership agreement can be restructured over time as circumstances or needs change. As in the case of any formal agreement of importance, an attorney should be consulted before final action is taken. However, you can save time and money if, before you visit the lawyer, all of the partners have an informal agreement about the kind of relationship they’d like to have. Q. I’ve got quite a few ideas for a new business, but I’m having a hard time choosing one to pursue. It seems that as soon as I get close to moving on one opportunity, I stumble onto a new, more interesting, more promising idea. Is this natural, or should I try harder to break the cycle? A. Creativity is essential to the entrepreneurial process. New products and services, and better ways of doing things are born in the fertile minds of visionary venturers who see opportunities that are transparent to mere mortals. But successful entrepreneurs are also “doers,” capable of making an original concept come alive in the marketplace. It’s not easy, however, to bridge the gap from idea to action. This is a pretty normal trap for an ambitious, creative person who doesn’t want to stop short of the best opportunity available. Unfortunately, such behavior can become chronic, preventing you from actually building a business outside of your head. To see if you are a dreamer or a doer, set a deadline for getting serious. Pick a date, say six months from now, at which point you will narrow your considerations to two opportunities. Give special attention to the financial, market and personal aspects of each venture. Then budget another six months or so for careful evaluation of those prospects. Don’t allow yourself too much time; good ideas tend to get stale or stolen. During the second six month period close your mind to any other ideas. This may not be easy, but it’s the only way in which you’ll be able to give adequate consideration to any prospect. Furthermore, if you find it impossible to concentrate on producing and analyzing just two alternatives during that period, you have a pretty good indication that you are hooked on dreams rather than deeds. Creativity is essential to the entrepreneurial process, but it must ultimately result in single-minded dedication to the implementation of one idea. Lack of consistent focus is one of the main reasons an entrepreneur fails in the task of taking a new idea from drawing board to purchase order. I advise all would-be entrepreneurs to hang on to their day jobs until they are really ready to do as well as dream. Paul Willax is a professor of entrepreneurship and chairman of the Center for Business Ownership Inc., Amherst, N.Y. He is also the author of the book, “Brass Tacks Tips for Business Owners,” available at barnersandnoble.com. If you have a question or suggestion for his column or to receive a free, weekly e-mail newsletter, “Brass Tacks Brainfood,” write to Willax@TheBrassTacks.com. Edit ModuleShow Tags