It’s often helpful to learn from the mistakes of others when you can, so I thought I would share some real-life pitfalls I have seen occur in recent months from my entrepreneur clients. Of course all identifying details have been removed, but I thought I would share a few examples of where things can go wrong and how to avoid it.
- Don’t Bother Getting It In Writing
At the start of every new business relationship, be it landlord-tenant, suppler-purchaser or between partners, the parties usually have the best of intentions. Rarely do people set out with a future conflict in mind, but all too often that’s how things end up. I have written about the importance of shareholders’ agreements to set the ground rules for a new business before (you can find that on my blog at blocklaw.ca). However, I have recently seen a few other examples where a lack of clarity has caused problems. For example, a high-end boutique retailer believed it had an exclusive right to sell a certain line of merchandise right up until that same merchandise showed up in a discount retailer down the road. My first question, “do you have an exclusivity agreement”? No. Then should they be surprised this happened? Probably not. Or an argument over the division of expenses on a house flip project. Again, “did you have a co-ownership agreement,, joint venture agreement or anything at all?” No.
Assumptions are dangerous things in business. The best advice is not to make them, and get everything in writing. Whether a formal agreement is required, or simply a confirming email will do your lawyer can advise you. But don’t go without.
- Just Assume the Documents are Correct
Building on the last point, even if you do “get it in writing”, don’t assume the agreement you were given reflects your discussions. I recently saw a store owner come up against a landlord over a leasing issue. The terms of their initial negotiations had been inconsistently recorded in their exchange of draft Offer to Lease documents. Somewhere along the line, a key term was dropped from the Offer document, and never made it into the lease. The tenant didn’t notice until the landlord came to collect. Now it’s a fight over the binding nature of the discussions, the signed Offer document and final lease, with arguments to be made for both sides. This conflict, even if resolved, is hard on a business relationship. Take the time to review your documents and seek legal advice as to their contents. The desire to “get going” can lead to hasty signatures. Take the time to be thorough.
- Forget the Long Term Vision
I have seen partnerships (between co-shareholders, true partners, co-venturers or otherwise) find themselves at odds when the parties’ goals simply don’t align. Sure, the short term vision was compatible, but what about the execution? Or the exit plan? Or what will define success? Is the business intended to be a “lifestyle business” that earns a good income for the owners on reasonable terms, but not much more? Or is it hoped to be the next Google, hunting down venture capital and the next big move along the way? What sacrifices are expected to be made? Will the owners draw salary right away, or is everyone eating microwave noodles until a buy-out offer rolls in and the founders “cash out”? These conversations are better had early and ideally distilled in writing. Of course, no one can see the future, and life happens, but at very least everyone should be pulling toward the same finish line at the start.
Don’t get me wrong. I love business. That’s why I recently founded my own firm focusing on entrepreneurs and small businesses, but there are plenty of ways to go wrong. The uniting message here is that with communication, care and good advice, these common pitfalls can be minimized, if not avoided. Take it from someone with a front row seat for what happens when the best of intentions fail.