Lay down rules at get-go to avoid confusion

Lay down rules at get-go to avoid confusion

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ON PAPER: Bagshaw Agri Consulting director Michael Bagshaw says when going into business with friends, document any agreement.

ON PAPER: Bagshaw Agri Consulting director Michael Bagshaw says when going into business with friends, document any agreement.

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The old maxim of "she'll be right mate, we'll sort it out later" should be deleted from every agribusiness owner's vocabulary.

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The old maxim of "she'll be right mate, we'll sort it out later" should be deleted from every agribusiness owner's vocabulary.

This attitude may work in certain situations, but if it doesn't, the ramifications can be devastating.

There are lots of smaller-scale transactions where a verbal agreement is entirely appropriate, and any issues can be worked out on the run; these types of deals happen in agriculture every day.

This column focuses more on the larger, ongoing transactions, including the syndication of large-scale machinery, the purchase of farmland, or even a business that is not agriculture related.

There is absolutely nothing wrong with doing business with friends.

But if you do enter into a business relationship with a friend, it is vital that the natural affinity felt between the parties be put to one side.

There are normally three ways these types of business relationships play out.

Firstly, it is highly successful and all parties benefit. Secondly, the venture is mildly successful or not, but ultimately no harm done. Thirdly, the business venture goes awry, money is lost, and friendships are ruined.

The consequences of the last example are to be avoided at all costs, as the ramifications can sometimes last for generations, and split families and communities.

But, there is a way to mitigate a potentially disastrous situation, before gets that far.

Namely, agree on the rules of the game before everyone signs up. You need to know your exit strategy before you start.

Assumptions are very dangerous, as self preservation will normally kick in, and those involved will usually have different interpretations of what was meant. This is particularly an issue when the agreement is entirely verbal.

If it is not written, it is not real. Although a contract can be verbal, it is far better to document any agreement.

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Obtaining external advice is useful with this process, either a lawyer or an experienced external advisor.

Ultimately, any agreement should be in the form of a legally binding contract.

Also, if one party to the agreement is not naturally assertive, that person will really need to get outside their comfort zone, and state their aims quite clearly. This simple but essential step ensures that person won't harbour any ill will once the deal is inked.

I do a lot of business with one of my best mates. The rules of the game were set from the get-go.

Quite simply, both parties had to add value to the business relationship, otherwise it wouldn't work.

So far it has worked, and as result the friendship is alive and well, partly because we speak to each other more regularly than we otherwise would.

There is nothing wrong with getting into business with friends, it can be mutually beneficial for lots of reasons.

Start a conversation with someone, you never know where it might end up.

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