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Couplepreneurs: Starting a Business with
Your Better Half Can Reap Huge Rewards - And Unique Problems
It's a familiar scene: A couple comes home after a long day
at their respective workplaces. They spend their takeout dinner
recapping the day and how much they hate their jobs. In a
brainstorm, they decide to start a business where they'll be
able to determine every step of their future from now on.
After all, they love each other — why shouldn't they be able
to work and live together?
For many couples, this major decision is the
ticket to wealth, self-determination and happiness. For others,
it can lead to severe financial and relationship stress. Such a
move takes more than planning — it requires a full assessment of
your personalities and your money issues to determine whether
working and living side-by-side is right for you. A good start
is a visit to a trusted financial adviser. Here are some key
steps to consider:
Give yourselves a timetable to startup. You might be
tempted to give notice tomorrow morning, but it's much wiser to
lay out a timetable over the coming months with specific
components.
Study the viability of your business model. Talk about
worst-case scenarios. Bring in some trusted advisers to ask
tough questions of what you're planning to do and the viability
of your idea. Convincing each other you'll make it work isn't
enough. You need to understand the marketplace you're walking
into and the roles each of you will fill in its success. Most of
all be realistic about your workload and when you can get
breaks.
Understand how your tax situation will change.
Depending which business structure you choose — and you should
get tax and legal advice on this before you start — you will
need to plan for income tax and self-employment tax and payroll
taxes, if applicable. Payroll tax requirements are more
stringent than income taxes.
Set a budget for your business and personal life. A
planner can help you establish a budget for supporting your
business as well as your life at home that will make cash flow
more predictable. Conserving cash is critical in the startup
phase of any business so critical long-term goals can be met.
Couples need an emergency fund of six months to a year of
expenses since successful businesses take months or years to
turn a real profit. And if the two of you haven't revised your
estate plan to accommodate the business, it's time to make that
plan now.
Plan for your kids in the business. There may be very
cost-effective ways to employ children in the business for work
commensurate with their skills.
Get your insurance in order. Before you leave your
current employer, figure out the cost of insurance you'll need
to take on for the entire family if you take on health, life,
home, business, disability and if you're over 50, long-term care
coverage. These expenses may be enough to encourage one of you
to stay at your old job at least for a while to keep those
benefits going while the other devotes more time to the startup.
Set targets. Talk through critical milestones of the
business — both good and bad. Do a proper business plan with
income and cash projections. Decide what factors would lead to
expansion or closing your doors. If you're doing so well that
potential buyers of the business start sniffing around, figure
out a point in advance at which you'd sell.
Talk about an exit plan if you break up. It may be
hard to imagine now, but a breakup of your relationship with no
financial plan for the business can be devastating. Whether
you're married or living together, a successful business is an
important source of wealth, and you need to plan for the day one
side of the relationship wants out and potentially wants to buy
the business or be bought out. If one spouse put more capital
into the business than the other, provisions should be made to
safeguard that investment.
Write it down. Documents and legal covenants are
important — make sure you have the right ones in place.
October 2007 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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