In a recent Q&A column, a reader of the Sarasota, Fla.,-based HERALD TRIBUNE wrote in to Ilyce Glink, a finance expert, asking what they should know about starting a remodeling business with a friend. This friend currently has a low credit score and is going through a nasty divorce. The reader has no experience in home remodeling, but explains that his friend does.
While Glink does advise her reader to learn more about business in general, to think about how the kinds of jobs the duo will do, and to think about business operations, she stresses the importance of an agreed-upon division of labor, first and foremost:
Think about the division of labor to start. If the division of labor you imagine is that your friend will provide the home remodeling, and you're going to provide contacts and connections to get the work, and you're going to divide the profits in half, that's fine. Or, if you're going to put up some cash to get started and he does the labor and marketing and you'll divide the profits, that's fine, too. There are many ways for you and your friend to determine how the profits of the business will be split.
The key thing is to have this conversation now and get your agreement about the business in writing before you start trying to borrow money. It's also important to figure out what type of business you are going into.
There are lots of decisions to make on the business side with your friend: You'll need to figure out what the ownership structure of the company looks like, what percent you and your friend own, what responsibilities each of you has, and how any cash you leverage or put into the business will be repaid before (or after) you and your friend get paid your salary, not bonuses. Will you hire employees? What benefits will you offer them and how will they be paid?
If you get through this first part of determining what the structure of the home remodeling business will be and how all the details will pay out, you should then pay for an attorney to put your agreement in writing. Both of you should sign it.
What do you think of this advice? Is this how you began your business? What else would you tell a would-be remodeler? Let us know in the comments below.