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No 79                                                                             November 2005

Survival Tips for Small Business Spouses/Partners

Part 1: There are no Paycheques

The first in a three part series on the things your spouse or partner should know before you start your small business

You’ve finally made the decision to start a small business. You’re checking off all the boxes: business licenses, logos and letterheads, accountants and lawyers. But there’s one glaring omission from your ‘to do’ list – your spouse/partner. Yes, you and your spouse discussed the small business idea. Yes, together you weighed the risks versus the rewards. You both agreed to go for it. Now, you need to discuss what ‘going for it’ means to your lives and your marriage/relationship, because your spouse will quickly discover that you just brought the office home with you permanently. Print out this checklist for your spouse to read and discuss it now, so you don’t have to argue about it later.

Part 2: You just got hired.  Loving spouse/partner equals employee. Read the job description.

Part 3: Setting ground rules. Define you and your spouse’s/partner's ‘working’ relationship.

An employed person brings home a paycheque with a fixed amount on the same day every month. There may be variations, but there’s always an approximate amount at an approximate time. A self-employed person abandons the concept of regular income. Invoices go out every month; the amounts always vary, and they may or may not get paid on time, if at all. There are windfall months and lean months, reliable customers and not so reliable. In addition, entrepreneurs have a built-in self-defense mechanism that says the money will come. The money will come, but usually it will come later than expected and be much less than predicted. Decide now how you plan to change household finances to work around off months, deal with flat quarters, or survive bad years.

Off months: a major customer pays late, a contract job’s end date gets pushed out a couple weeks, an expensive piece of equipment has to be purchased. Obviously, you and your partner expected this, but did you draw up a plan in advance to deal with it? Are you going to save a chunk of income from the good months in preparation? You need to accurately budget now to know how much you need then. Are you going to cut luxuries for that single month? Itemise the luxuries and amounts to make sure they’ll be enough and that you can cut them easily. Will you rely on credit that has to be repaid? Evaluate how much credit you have, how large the limits (enough to cover a house payment?), and interest rates. Consider things like home equity lines of credit now, because you won’t be able to get them when you have no income, which is the catch-22. It is easy to say, we can survive an off month now and then; but the continual ‘what are we going to do’ conversations put a lot of pressure on a marriage or relationship.

Flat quarters: a key client suddenly cuts you off, a major customer simply can’t pay at all, nobody does business between 1 December and New Years. Unless your business experiences sudden success or great luck, there will be flat quarters. If you really considered the risks, you and your spouse expect this too. You have probably even made a quick mental list of possible income sources. Now’s the time to write down your resources and assets, and figure out their exact value and what it takes to turn them into ready cash. Are you going to borrow from friends or relatives? Determine who you are willing to borrow from, how much they can lend, and what you will do for them in return – because there is always an ‘interest’ on borrowed money. Will you sell something? List the things you might sell – second cars, expensive toys, non-sentimental jewellery. Find a probable buyer and get a solid estimate now. Will you go into debt? Once again, look at credit cards, home equity and the like. When you look up and discover you’re in a flat quarter, you won’t have the time or the clear mind to make the best decisions.

A bad year: your product isn’t selling, the contracts dried up, and the sky is falling. Knock on wood that this doesn’t happen, but it could, and you need to be ready for it. Your strategy here is a bit different from the shorter dry spells. First, you and your spouse need to seriously discuss how much and what kind of debt you both can accept. Maybe one of you doesn’t mind a second mortgage, but the other does. Maybe one of you doesn’t mind borrowing from your parents, but the other can’t stand being beholden to the in-laws. Also, exactly how much debt can you dig out of? The older you get or a lowered ability to earn income (as an employee) diminishes the amount of debt your financial future can handle. This decision melds with the second – when to call it quits.

Calling it quits before you even start seems counterintuitive. But starting a business is a gamble, and wise gamblers always know how much they can afford to lose before they walk into the casino.(Recall the Kenny Roger's Song). This marital conversation can get ugly because the two of you are discussing at what point to kill a dream that only one of you has. (Yes, of course you are supportive of your spouse’s dream to own their own small business, but it didn’t start out as your dream.) This conversation requires some personal self-awareness so you can honestly answer the question; how much are you willing to give up to support your spouse’s dream? Sure, you’re willing to give up going out to eat so much or mow the lawn instead of paying the neighbour's kid. But are you willing to downsize from a suburban to an econobox? Are you willing to not visit relatives because travel is expensive? What about pulling money out of your kid’s university education fund? And to get psychological, how much stress and deprivation can you truly handle? For the sake of your marriage, honestly and openly discuss this now. Then together set a measurable line in the sand. After that hurdle is passed, set up your exit strategy. If your business dies, what’s your next employment? How quickly can you secure income? How will you dig out of debt? What’s your emergency plan?

At this point, you or your spouse is probably tempted to tear up the business license. Slow down for a second and remind yourself that you did consider the financial risks inherent in starting a small business and both agreed the possible rewards are too exciting to ignore. Planning your money strategy is simply being prudent like purchasing insurance in case of an accident. The positive side to all these questions is that you are answering them because every action you take is directly affecting your financial future because you are in control of it now, not some anonymous CEO.

Parts 2 and 3 to come

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