microphone

Channel WCN

The Latest in Law

Apr 18, 2023 | Blog, Business Law

Ground Rules for Spouses Running a Business

by

Managing a business with your spouse often presents exciting opportunities. However, a complex operating environment and uncertain growth trajectory, coupled with significant financial stakes and various management issues inherent in the business, may present challenges that can strain or threaten personal relationships. This article explores ways to help address and mitigate these risks.

Co-Preneurs

Married couples who co-own and operate a business are increasingly termed ‘co-preneurs.’ In the US, a great number of businesses are co-owned by spousal partners, and in the current economic and post-Covid environment, the ranks of co-preneurs are undoubtedly increasing.

It’s rare for both spouses to wake up one morning and realize that they should be running and managing a business together. More often, one spouse decides to capitalize on a business venture, and the perceived economic upside (and/or lifestyle benefit) then compels both spouses to join forces. In either scenario, a major decision emerges from the realization that an exciting opportunity knocks.

This dynamic of co-owning and running a business sounds good in theory. The challenge is to ensure that theory and practice are consistent; that the Pros of co-owning a business outweigh the Cons; and that most of the discussions around the dinner table are centered on positive themes rather than hashing out complaints or business problems.

What steps can spouses take to maximize the utility of their business? How should spousal owners approach their roles and responsibilities within their co-preneur relationships?

Irrespective of how the spousal business is structured, the issues that can challenge spousal harmony are the same.

Ground Rules / Caution Flags

Before entering into any major business-related commitment, both spouses need to have their eyes wide open.

Risk Tolerance: Running a business involves risking assets. Risk calculus can be complex, and when spouses decide to form and operate a business, they should determine, and mutually agree at various points along the business timeline, how much risk they want to accept.

Cash Flow: While some businesses can be run with little cash, in general, any worthwhile business will have real cash needs, and these needs will typically grow as the business scales. Spouses should take steps ahead of time to secure / dedicate funding necessary to launch, maintain and grow the business. Few things are more stressful for a relationship than investing emotionally in a slick new vehicle and discovering you can’t afford the fuel.

Compatibility: In successful marriages, spouses balance different personality traits and working habits. This balancing act needs to occur in the business as well. Spouses should identify their skill sets, acknowledge their personality types and recognize their strengths.

Establish Boundaries: Every spousal business should have an agreed division of labor and management responsibility which each spouse should respect. These boundaries should be clearly communicated across and outside the business and reinforced as necessary.  

Open Communication: Most important business decisions involve some element of controversy or conflict of opinion. It’s easy for spouses to become emotional when evaluating business decisions, especially if they strongly disagree with their partner’s line of thinking. While it can be difficult to check emotions at the door, it’s important to focus discussions on the facts and construct compelling, non-emotional arguments.

The Good News

Spouses are in a position to communicate freely and frequently, which gives them a built-in advantage when running a business together. Capitalize on this advantage. Strive to build communication channels that promote constructive business discussions and reinforce the positive aspects of your relationship. If done well, this will help defuse the inevitable conflict areas that arise in business environments.

Maintaining Your Personal Space: As marriages mature, spouses increasingly require their individual space to pursue individual interests that keep them engaged and energized. When spouses are managing a venture, business-related activities, evaluations and decision-making can easily fill up available time, creating unwanted stress. It’s important for spouses to dedicate time to their respective happy places.

Structuring Management Responsibilities

When spouses manage and operate a business, the most important decisions often revolve around management of the enterprise and ensuring that both spouses are closely aligned with respect to product or business strategy. It is one thing to own a business jointly and quite another to successfully manage it in the context of a spousal union. As much as possible, you want to avoid business-related conflicts that fester in the home.

Spouses should be on the same page regarding the goals and strategic direction of the company. It’s equally critical to have a clear delineation of responsibilities, particularly as they relate to managing employees and setting operational strategy. Communications – inside and outside the company – should reflect this alignment. The last thing you want is employees who are confused about their individual roles, managerial oversight or the company’s mission.

Because financial stakes can be extremely high when spouses form a business, it’s important to ensure that both spouses have sufficient command of key financial issues and/or access to relevant expertise.

When preparing to delineate management responsibility, there are several areas you should evaluate with your spouse to determine relative strengths and interest levels:

  • Depth of business experience
  • Strategic thinking and decision-making ability
  • Financial acumen
  • Understanding of products & services attendant to the business
  • Comfort with information technology and related platforms
  • Communication skills and methods
  • People skills / ability to manage employees
  • Marketing savvy
  • Facility with various relevant operations

This evaluation process can illuminate areas of respective strengths and determine how the partners should best structure and fulfill their management responsibilities.  Playing to spousal strengths and embracing open and constructive communication enhances the operational environment, reduces potential conflict, and increases the chances of business success.

Setting out the management structure early on will help avoid – or at least minimize – the impact of business management issues on spousal relationships. Once specific responsibilities have been set, it’s important for spouses to both acknowledge and respect the management structure and related boundaries.

Conclusion

It can be incredibly satisfying when spouses combine their efforts to launch and successfully run a business. Some careful planning at the front end of this process can yield substantial dividends.

Stephen Wilchins, Partner at Wilchins Cosentino & Novins, employs a highly personalized concierge approach to guide our clients with sound, pragmatic legal solutions, working closely with founders, directors and managers of private and family-held businesses on strategy and day-to-day business matters. Learn more about our Business Law practice and how we help business owners, including co-preneurs, from business formation to exit.

This article is not legal advice and should not be taken as such or relied upon as legal advice.