Setting up a business solo, or think you might need a co-founder? There is so much advice out there about the absolute, definite rules of starting your own business. Particularly in the tech-sphere – in some cases, not having a co-founder has been stated as the reason some startups fail.
From our experience, we aren’t sure this is true!
Here we explore some of key issues from a financial point of view:
1. Who owns it?
When you found the business, and you both put in equal amounts of time, effort and funds, in theory you should go 50:50 on shares, right? Make sure you think about this thoroughly:
- Who owns the IP?
- Who is the financial signatory on the bank?
- Do you both want the same dividend at all times (this is a tax planning issue!)?
- How will you deal with any money put in – is it a loan or share capital (for example)?
- Can one of you sell your shares to another?
In our experience, these issues can be overlooked. They can also be a sticking point later if things start to unravel and one party wants an exit.
We’ve seen several businesses over the years experience a breakdown of relationship and an exit becomes difficult due to the structure of ownership at the start.
2. Who gets paid what?
This has to be one of the most important discussions up front. This can often change as businesses grow. It then becomes an area of frustration where one founder puts in more time or money than the other. As a result, care should be given at the start around this issue.
- Do you take a set salary and then split the profits?
- Is one of you able to work more than the other, and therefore command a higher salary split?
- How do you do this so no one is disadvantaged with tax?
- Have you looked at your early stage cashflow to see what is realistic? Have you given yourself enough of a cash cushion for the time it takes to find – and get paid by – new business?
- Are the initial payments to founders repayments on any money put in, or a salary?
The fact is that if you decide to co-found, with the pressure to support two (or more) incomes, families and ambitions, the costs before you get started can be higher than necessary, and can eat into vital resources.
Early pressure on multiple wages can be a very stressful issue to deal with. Planning and agreement up front is key.
3. On a non financial note!
Having a co-founder can just be all-round, more useful
Having someone in the business who’s a natural excel genius, exceptionally technically minded or has a flair for the visual could be a time saver. They can also keep your ideas on the right track to success.
Having complementary skill-sets is also a great early benefit that may save you some time or money on services you may have needed otherwise. You of course have to offset this with the extra financial restriction of a second founder’s salary.
4. Having ‘friends of the business’ can be good
Building up a ‘business family’ network can be a great thing, and sometimes, can be as effective as a co-founder. Coaches, peers and complementary service providers can help you out – and to a certain extent, stay objective as they can bring an outside world view to your business.
If you network regularly you are sure to come across not only some great businesses that ou can work with, but also many great people who will be supportive of your new venture.
This can help if you do decide to ride solo.
If you are starting a new business and want to chat to someone around the financial considerations, please get in touch with our team – we’d love to chat.