Starting a business with your partner can be an excellent idea. Indeed, there are business partnerships and ventures in Kenya between spouses that have worked seamlessly. But just as successful as starting and running a business as a couple can be, the opposite can also be true.
Running a business with your spouse can easily turn into a disaster for both the business and the relationship. This is why you must adhere to certain rules when starting or running a business as a couple if you want to ensure the business, the relationship, and yourselves as individuals succeed.
The legal and contractual agreements
When entering into a marriage, one of the most recommended obligations for couples is the signing of a prenuptial agreement. This agreement safeguards the wealth you had accumulated before marriage, and also outlines the division of finances and assets in the event of a divorce.
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In the same measure, when entering into a business partnership as a couple, you will need to have your legal and contractual agreement in place. According to startup consultant Claire Nyokabi, having legal and contractual terms in place will allow your startup to have a foundation that is independent of your personal relationship.
“This means that even if your relationship breaks apart, your business interests will remain safeguarded,” she says. This agreement will also safeguard the investment you both make as well as outline how compensation for initial investment will be done.
The salary
You will need to pay yourself salaries. In your partnership, you will be distributing profits and losses based on the percentage you each own as outlined in your legal agreement.
According to Nyokabi, the amount of pay you allocate yourselves must be realistic and based on factors such as the location of your business, the sales, the market standards for similar job positions, the amount of work being done, and the age of the business.
“Once you agree on salaries and put it in writing, you will also need to determine when a salary review can be conducted,” says Nyokabi. For example, in your agreement, you can state as follows: ‘We agree that until sales reach Sh. 400,000 per month, each partner will receive a salary of Sh. 20,000. If sales exceed Sh. 200,000 in the first six months, each partner will receive a bonus of Sh. 10,000.’
The salary must be manageable for the business. It should not eat into the operating capital especially if the business is new.
Nyokabi adds that other than the salary, you can have a ‘Draw Agreement’. “This is an agreement that will allow either of you to draw a percentage of their pay in anticipation of profit distribution. For example, if you are expecting bonus dividends of Sh. 80,000 from the business at the end of the year, the spouse who is short on cash can take a draw of Sh. 20,000, which will be deducted from their share of Sh. 40,000,” she says.
The consultant
Hire a consultant or expert who will be able to objectively analyze and audit your business on a quarterly basis. For instance, says Jeremiah Rugunya, a certified public accountant and the lead consultant with Prolific Business Consultants, Income Tax and Value Added Tax are two of the major taxes your business will need to honour.
“There is income tax for companies and individuals. Companies are taxed at a flat rate of 25 per cent of the profit made. Sole proprietorship and employees fall under individual income tax and are taxed under a graduated scale (Tax bands),” he says.
Rugunya recommends that your consultant must be able to respond to startup taxation issues such as when these taxes are filed, how they are filed, and how claims are settled, as well as regular auditing and bookkeeping.
The familiarity and boredom
As business and romantic partners, you will mostly spend time around each other. This can rapidly build up boredom. For example, the allure of finding out how your spouse’s work day was and the experiences they encountered will fizzle out. There will be little to talk about.
“The first few weeks after launching your business together may be exciting. But running a startup, the frustration of breaking even, and the familiarity of being around each other all the time can be too exhausting,” says Nyokabi.
If the business space allows, create a separate office space for each partner. This will allow you to have your independent routines. If the business doesn’t have too much space, find roles that will not have you stuck on each other all day long.
“For example, if you run a consumer goods wholesale business in Embakasi, you could take over daily operations while your husband could take over delivery operations. You will be stationed at the business premises overseeing daily operations while your husband will be out supervising deliveries to customers or picking and delivering fresh stock from industries to your warehouse,” says Nyokabi.
Decision-making and communication
If you have employees, you must have a structured way of making decisions and communicating them. According to Malini Bhatia, a family psychiatrist, your employees will have to know that you are responsible for the decisions taken in your respective roles.
For example, if you run the marketing department, any marketing decisions will have to be communicated by you. “This is supposed to let your employees know who makes the final call.
For example, if you run the marketing department, you will want to hear your partner’s thoughts and opinions on different strategies and approaches, but your employees know that you have the final say in that department just as your partner has the final say in their docket,” says Malini.
Work-life balance
In Kenya, data from the Small Business Administration shows that 1 out of every 5 businesses fail within the first year. Half of those that survive fail within the following five years. This means that if you are starting a new business with your spouse, you may easily get lost in the tough task of making it work.
This can lead to a work-life imbalance and eventually burnout, both in your business, relationship, and family. Take the initiative to set targets that will get you closer to the sort of family, social and entrepreneurial life you want. “Prioritize the most significant things first. This entails planning and writing critical to-do items down.
For example, you can select three things which will guide you in your daily roles in both life and business,” Isis Nyong’o, the co-founder of Women Work Kenya, said in a recent forum that was held by Absa Kenya on work-life balance. In addition, having a plan will ensure that you avoid the imbalance of overworking without results.
According to Kerry Goyette, an entrepreneur and the author of The Non-Obvious Guide to Emotional Intelligence, you can coordinate your business operations in a way that occasionally allows either of you some time off after a burst of hard work.
“I work really hard in small bursts then take time off to relax. For example, if I work intensely over the weekend, I will take time off during the week or over the following weekend. This is the same principle you should include in your partnership,” she said.
Quick takeaway: Handling money as a couple:
What to do
Bank accounts: Psychologist Dr. Chris Hart says that you should have three bank accounts. A private account for each of you, and a joint account which you use to manage your household and relationship expenses.
Prioritize money and money talks: You must make your finances a priority. This means you’ll know what to expect, your financial boundaries, capacities and limitations. “If you fail to prioritize your money right before things get serious, it won’t be a priority down the line,” says David Bach, the author of Smart Couple Finish Rich. Plan together, and know what purpose the loan is funding.
Financial unfaithfulness: Be financially faithful. Don’t lie and hide money and purchases. If you say it’s a loan, then endeavor to repay. If there’s a huge amount of money involved, explore the possibility of putting it in writing just as you would commit to a prenuptial agreement.
Promissory note: Stefanie O’Connell, a financial advisor and author of Broke and Beautiful, says that due to the dynamics of a romantic relationship, you should stretch as far as a promissory note – which in the worst case scenario can be legally enforceable. “Both of you should make a plan on the amount of money being borrowed, how it’ll be used, and when it will be repaid, where the money is going, and then put it in writing,” she says.