Don’t Let Identity Theft Ruin the Holidays

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As you gear up for the busiest shopping time of the year, managing your money involves more than just setting and sticking to a budget. 

Thieves, knowing that the holidays make us distracted shoppers, are just waiting for you to make the slightest slip-up that allows them to access your finances. That explains the 22 percent spike in holiday ID theft from 2016 to 2017.

Couple this with the fact that 53 percent of all holiday shopping now happens online (a hacker’s paradise!) and the odds are pretty good that even the wisest of us might make our wallets a little more vulnerable this time of year. 

So take a break from raking leaves, grab a turkey leg, or settle in with some pumpkin pie and let’s dig into steps we can take to spend safely this holiday season. 

Be Vigilant Online

An Experian survey of those who experienced holiday identity theft indicated that 43 percent of the theft occurred while online shopping. Specifically, 16 percent of that theft occurred on Cyber Monday. 

Clearly, this is the season for cybercrime. 

Most of us are probably familiar with basic online shopping tips, but being SUPER vigilant this time of year means taking it up a notch:

  • Type in the web address instead of clicking on a link 
  • Only make purchases on sites that are secure, like those that have “https” in the URL or that have an icon of a lock before the URL  
  • Don’t conduct business over public Wi-Fi, including signing in to any sites or apps
  • Be wary of inbox deals that seem too good to be true; they probably are, and they are probably phishing scams

These may seem like common sense tips, but our stressed-out, holiday-frazzled brains sometimes take shortcuts during this busy time of year. Stay alert and trust your gut. 

Maintain Your Personal Space and Info

If you brave an actual shopping trip out into the throngs of frenzied consumerism, beware of those that are keeping a close eye on your transactions. These people stand just a little too close, trying to see your PIN as you type it into the keypad. 

Or they are overly interested in whatever item is on display next to the area where you are applying for that new store credit card or club membership. They like to lurk around ATMs.

If you feel someone is standing too close, ask him or her for space. This will let them know you are aware of them and their actions, and they will move on to someone less suspecting. 

If you must use an ATM, keep your head on a swivel and shield the keypad. Ask a friend to keep watch, if you can. 

If you can avoid it, never say personal information aloud. If a cashier must have your info for a membership or marketing program, or you are signing up for new credit, try to use the text function on your phone to show the information and then quickly erase it. And of course, carefully guard the screen!

Use Those Credit Cards

For so many reasons, credit cards are the way to go when it comes to lessening the sting of identity theft. Credit cards offer better fraud protection, including reduced liability for you, generally limited to $50. You also avoid having your personal funds drained and the potential wait to get that money back (if you can).

 Of course, using a debit card also comes with that whole PIN entry dilemma we just covered. Both credit cards and debit cards are still exposed to the threat of skimmers, which are devices that thieves attach to card readers so they can copy and duplicate your card information, but credit cards offer more time to report a theft and you don’t have to worry about going weeks without funds and potential overdrafts to your account. 

Bottom line: leave the debit card at home, use credit, and check for skimmers. 

An Ounce of Prevention

The easiest way to combat identity theft is proactively taking steps to prevent it in the first place. 

Luckily, many banks and credit cards offer tools to monitor your accounts and alert you to any potentially fraudulent activities. Take advantage of these resources to provide an extra layer of security. 

Also, keep an eye on your monthly statements or log in to your online accounts weekly or daily (from a secured Wi-Fi connection, of course). Actively managing your accounts will help you catch identity theft as it happens, and may even help you keep on top of your holiday budget.

You can take prevention a step further by asking the credit bureaus to put a freeze on your credit. This blocks thieves from opening new accounts in your name, regardless of whatever personal information they may possess. 

If It Happens…

Your first steps should be to contact your creditors and the credit bureaus to alert them to the fraud and stop it from progressing. You will most likely need to freeze your credit and place a fraud alert on your accounts. 

The Federal Trade Commission offers a consumer-friendly site to walk you through a checklist of fraud recovery, including how to address specific types of fraud and identity theft. 

Finally, if you have a financial advisor or planner, talk to her or him about identity theft. They can help you put preventative measures in place, as well as create a plan of action in case it should ever happen to you.

Happy shopping!

What Women and Men Get Right about Investing

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Yes, I know that with this loaded topic, the potential exists for this article to quite easily go off the rails. This could become yet another article about Mars vs Venus. Another opportunity to perpetuate stereotypes about bringing home the bacon vs buying yet another pair of shoes. One more piece that paints women as financially inept and men as financially savvy.

That’s why I’m going to take a different approach here. Instead of pitting men against women or making one group of investors out to be better than the other, I want to highlight what it is that both women and men do well when it comes to money. Specifically, when it comes to investing.   

Women Invest Wisely

First, it’s important to point out one significant fact that may or may not surprise you: women are better investors. It’s true. 

Several recent studies have shown that women who invest outperform men: 

  • A 2017 Fidelity study showed that women perform better than men by 0.4 percent. While this may seem negligible, the increase can compound over time to create a significant return.
  • A 2018 Warwick Business School study showed even better stats: women outperformed men by 1.8 percent. That’s a 0.6 percent increase over their 2016 study. 

And that’s not to mention that women are better savers, putting aside 9 percent of their paychecks while male counterparts are saving 8.6 percent of their paycheck. 

Yet, despite this positive performance in the market, women self-report a surprising lack of financial confidence. Only 47 percent of women rate their financial understanding as good or very good. Of those women who do invest, only 43 percent of them were confident about those investments. 

Nevertheless, trends among female investors show a number of factors that contribute to their increased performance: 

  1. Women are wary of risk. Almost half of women (48 percent) worry about taking on too much risk. The result is that women tend to seek balanced portfolios that minimize risk via asset allocation, producing more steady results over time. 
  2. Women are patient. When the stock market is volatile, women simply remain calm and focus on long-term returns. Think tortoise vs hare, with women adopting a slow and steady strategy to win the race. 
  3. Women seek guidance. Women are more likely to ask for help when they’re ready to invest. Seeking professional advice can help align long-term goals with well-informed investing strategies, rather than just making “hot picks.”

Men Invest Confidently

While women may be better at investing, men approach investing with less trepidation and more gusto. The result is more men taking greater advantage of the financial gains via investing. 

A litany of research exists to show just how prolific men are when it comes to investing: 

  • Men invest 60 percent more money than women do.
  • Men hold only 60 percent of their assets in cash while women hold 71 percent in cash.
  • Men overwhelmingly (53 percent) choose the most aggressive investment plan, compared to just 38 percent of women.
  • When asked what they would do with an extra $1,000, men were 35 percent more likely than women to put that money into investments.

So how do men come by this seemingly natural level of confidence? Well, there’s a lot we can say for how we socialize kids regarding money. A recent PNC survey among Millennials indicates that having the money talk with boys tends to focus on how to build wealth. 37 percent of males said their financial education included wealth-building while only  29 percent of females said the same. Girls were more likely to be told to focus on savings (67 percent of females vs 58 percent of males). 

It seems that men are getting the investment message loud and clear from the time they are young. No wonder they tend to embrace risk, manage their own investments, and engage in active trading. 

What Can We Learn From Each Other

Well, it’s pretty simple really: women should take a confidence cue from men, while men should mirror women’s more measured approach to investing. But how do we make progress in bringing these mindsets closer together?

First, we can start by educating both boys AND girls about wealth-building. It’s outdated to think that personal finance for women revolves around household management, or that men are solely responsible for being the breadwinner. Let’s have balanced discussions that stress the importance of holistic money management with all kids.

Second, we can work together with professionals that consider these gender differences as part of the advising process. As women investors increasingly become an area of focus for finance professionals, more advising firms are taking a female-centric approach to working with clients. 

For male investors, adding a female advisor to your team can provide a different perspective to balance your strategy. 

Finally, being cognizant of these differences and learning to appreciate our individual strengths can move us closer to embodying those positive financial behaviors of the opposite sex. 

Becoming a better investor should include learning from anyone with a proven track record, regardless of gender. Shifting our mindset to look at these differences in terms of successful outcomes instead of uniquely male or female traits can help bridge this gap.

Making Smart Money Moves for School

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Planning for College

Ah, September. After the dog days of summer, this is the month where we can finally enjoy some cooler weather, all things pumpkin, football, and maybe even a cozy sweater or two. And if you’re a parent, you are either counting down the days or already basking in, what is really the most wonderful time of the year: back-to-school time. 

It’s fitting, then, that this month we take a look at what it takes to get your kids to and through school —  and we’re not just talking college! Let’s face it, K-12 can be costly, too, at both the public and private level. Luckily, there are two savings plans that help you plan and save for both your immediate secondary school costs, as well as your future college costs.  

Coverdell

Let’s start with the Coverdell Education Savings Account. This investment account allows you save up to $2,000 annually in after-tax contributions until the beneficiary turns 18. Earnings are tax-free and so are withdrawals, if they are used for qualified education expenses. 

This a self-directed plan, giving you the flexibility to invest in what you’d like. Parents, grandparents and other family members may contribute in the child’s name. However, it does come with limitations on who can contribute, based on income: if your AGI is more than $190,000 for joint returns or $95,000 for single filers, this is not available to you. 

For Use In: K-12 and College 

Qualified Expenses: Books and supplies, tutoring, computers/laptops, transportation, special needs services, uniforms, private school tuition, college tuition, and room and board. 

Other Things You Should Know: The balance must be spent by the time the beneficiary is age 30. However, you may transfer the balance to another beneficiary or roll it into a 529. 

529 Plan

The 529 plan is administered at the state level and also offers tax-free earnings and withdrawals for qualified education expenses. Think of 529 plans and ESAs as Roth IRAs that are pinpointed for education.

Previously used only for post-secondary costs, the 529 plan was updated in 2018 to allow for an annual withdrawal of $10,000 per year for K-12 tuition. Take note of that: unlike the Coverdell, the 529 can be used only for tuition at the K-12 level. 

The 529 also differs from the Coverdell in that there is no contribution cap. However, $15,000 annually is a good number to shoot for, since that is the maximum allowance under the gift tax exclusion. There is also no income limit for contributors.

With this plan, your investment selections are limited to what your state provides. Thus, you may choose to use another state’s 529 plan (yes, you can do that!). Your state may try to keep you local, however, by offering an income tax deduction for your 529 contributions. Check state-by-state deductions here. 

For Use In: K-12 (private school tuition only) and College 

Qualified Expenses: Books and supplies, computers/laptops, private school tuition, college tuition, and room and board. 

Other Things You Should Know: Should your child not go to college or you have excess funds, you can still use the 529 balance for non-education expenses. However, you will be assessed a 10% penalty and pay taxes on the earnings (and may have to repay any state tax breaks). 

The 529 is also transferable to other beneficiaries for education expenses, including siblings, grandkids, or even yourself. Or you can let the account stand and apply it toward graduate school. Worst case your grandchildren could inherit them!

Tax Credits

In addition to these savings plans, don’t forget to look into any state or federal tax credits for which you may qualify. 

State Programs

For secondary school costs, there are some states that allow for credits or deductions on qualified expenses. Depending on the state, that can include private school tuition or out-of-pocket costs for special needs students. You can view all state programs here. 

American Opportunity Credit

At the post-secondary level, you or your student can take advantage of the American Opportunity Credit for most undergraduate college costs (except transportation or living expenses). You may claim 100% of the first $2,000 spent on qualifying expenses, and 25% of the next $2,000 for a total credit of $2,500. 

Parents will get the credit as long as the student is claimed as a dependent, with some limits based on modified AGI. The credit can be claimed for a maximum of four years. 

Lifetime Learning Credit

A little more flexibility is available with the Lifetime Learning Credit, including the ability to claim books or supplies, and the inclusion of graduate, vocational, and non-degree students. There is also no time limit on how many years you may claim the credit. 

The maximum amount you may claim is $2,000, or 20% of up to $10,000 in qualifying costs. Like the American Opportunity Credit, there are also income limits based on modified AGI. 

Ask an Expert

Just like we encourage our kids to seek help from a trusted expert, I encourage you to sit down with a financial advisor to make sure you’ve explored every option to make the most of your school savings plan. As programs and plans vary among states, your advisor can keep you posted on the plans, credits, or deductions that will allow you to maximize your money – now that’s a smart move!

Yes, You Need Digital Estate Planning. Here’s Why.

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Digital Assets & Passwords

You’ve done your due diligence when it comes to shoring up your affairs: bequeathed home or property made plans for where your money should go, or even made plans for the end of life care and health directives. You have responsibly planned for what lies ahead and now you’re all set, right? 

Well, not so fast. Unless you’ve also addressed your online assets, you’re not as prepared as you may think. Consider these scenarios after your passing:

  • Who will be able to access your email accounts?
  • Will anyone be able to manage or post final messages on your social media accounts?
  • Will your digital photos, music, or other “in the cloud” items be accessible to friends or loved ones?
  • Who’s going to manage your online business or blog, if you have one, or your seller account on sites like Etsy or eBay?
  • How is digital currency, like credit card rewards or Bitcoin, to be handled?
  • Can anyone access your online financial accounts?

With just these few examples, you can see how much of our business and our lives are conducted online and, thus, just how important it is to include digital assets in your estate planning. 

Let’s take a look at what you need to know to get your online affairs in order. 

Legalities

First, it’s important to understand how digital estate planning provides legal protection for friends or loved ones that you may enlist to manage your assets. 

You may think that sharing a list of usernames and passwords is all you need to grant others access to online accounts. However, unless the recipient has a legal directive to access those accounts, he or she may not be recognized as an authorized user. 

That can lead to accusations of identity theft or hacking. 

To address this issue and provide legal protection to well-meaning third parties, the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADDA) of 2015 has now been enacted in almost every state. This gives fiduciaries the right to manage digital assets as they would tangible assets.

Again, however, it’s not enough to just ask someone to fill this fiduciary role. In order to protect them as an authorized user, this fiduciary must be assigned through a will, trust, or power of attorney. 

Following legal procedures provides protection and peace of mind for both you and the person you choose to serve as your online manager. 

How Do I Get Started?

Ready to plan for those digital assets? Here’s a basic list and some helpful resources to get started.

Start a List

Think about all your online accounts and/or assets and list them. Include everything, such as: 

  • Online financial accounts, including banks, utilities, mortgages, and investment accounts
  • Email and social media accounts 
  • Passwords for accessing devices
  • Online storage accounts like iCloud or Google Drive, including storage accounts for photos, videos or music
  • Payment sites like PayPal or Venmo
  • Online business or blog information, including domain names

Don’t forget to also include information on any hardware you may use, such as computers, laptops, tablets, flash drives, smartphones, and watches, etc. View this article for a more comprehensive list of what you may want to include in your digital inventory. 

TIP: You may find it helpful to keep this information in an online account management program, such as LastPass or Keeper. 

Detail Your Wishes

Now that you have all your assets accounted for, you need to decide what happens to them. Take extra time and care to make these decisions, and be as detailed as possible. For example, there may be emails, photos or posts that you would not want certain individuals (or anyone!) to see. Specify those wishes down to the letter. 

Also, don’t leave any decisions, no matter how small, up for interpretation. Do you want your knit sock store on Etsy to shut down immediately, or after all the socks are sold? Do you want your sister to have access to all your photos, or just the ones from your shared family vacations? Do you want your family fighting over your credit card rewards?

The devil is truly in the details when it comes to digital assets. 

Make it Legal

The next step is choosing who is going to serve as your digital manager a.k.a. digital executor. Naming an individual for this role clearly defines who can and cannot have access to your online assets. This person can also work with your overall executor to make decisions regarding digital assets. 

This person can be a friend, family member, attorney, business manager or any other trusted individual. Most importantly, whomever you choose should be willing to manage your assets according to your wishes, and not abuse that trust. 

Finally, work with your estate planning attorney and financial advisor to put this all into writing. This will include updating wills or a codicil to a will, powers of attorney, and living trusts. If you live in a RUFADDA state, you may need to complete additional electronic forms specifically naming your online fiduciary. 

TIP: Do not include your actual online asset inventory or any usernames or passwords in your will. Your will becomes a public document upon death, allowing anyone to access this information. Instead, store this sensitive information with your attorney, in a safe, or an online storage service. Just make sure to share the location with a few trusted folks. 

Once you’ve got your plan in place, don’t forget to update it regularly to account for any changes in new laws or your own digital activity.

To Own or Not to Own?

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In last month’s blog post, I talked about both the positives and negatives of business partnerships. I recommended a lot of soul searching and “know thyself” kind of questions that can guide you in making the best decision for yourself.

This month, we’re going to take a step back and ask ourselves a broader question that can help inform any entrepreneurial decisions: is it even worth it to own your own business, partner or no partner?

If you have been thus far deterred because of the oft-repeated statistic that 90% of startups fail, I’ve got good news: it’s not actually true. Even during the worst of times (the dotcom bust), the failure rate only reached 79%, a full eleven points shy of this dismal projection.

If we look at the actual numbers, you might feel a bit more encouraged:

Startup Failure Rates by Year:

  • Second year: 20%
  • Third year: 30%
  • Fourth year: 38%
  • Fifth year: 44%

Essentially, you’ve got a better than 50-50 shot of your business making it past the five-year mark – a pretty level playing field, if you ask me!  

So, now that we’ve cleared up that initial hurdle, let’s look at what is both good and bad about business ownership, and what successful business owners can learn from failed startups.

Control

Pros: If you’re considering starting a business, you probably already feel that tug of wanting more autonomy, of having the final say over everything. You want to be your own boss and answer only to yourself.

And in many respects, you will have that: you’re choosing the product, the marketing, the income, the policies, the hours, the workers, etc. You will definitely find a freedom in business ownership that you didn’t have as an employee.

Cons: However, ironically, complete control comes with limitations you may not have expected. For example, you’re probably going to have to initially do tasks you don’t enjoy and/or are not prepared to handle (ahem, accounting, IT, legal issues, admin tasks, etc).

Your workweek will almost definitely log more than 40 hours, even if you get to dictate the when and where. If you have investors or board members, you’ll have to answer to them. And if you build a product and no one comes, you’re going to have to rely on customer input, not just your own vision, to retool your business.

Finances

Pros: The sky is the limit! You get to choose your salary, there’s no limit to how much you can earn, and your own effort and hustle can directly impact all of the above. For once, you are in a position to control your financial destiny.

Cons: Pure profit is a shortsighted view of business ownership, especially during the critical first years. Much of your income will probably need to be reinvested in the business to help it grow, and your income can be highly unpredictable while trying to establish your business.

Additionally, your personal finances are no longer your own due to liability issues. Personal liability as a business owner means co-mingling of business and personal assets and you can lose it all if sued. Protect yourself by exploring ways to limit liability.

Fulfillment

Pros: Maybe you are pursuing your own business because you want to help people, contribute to society, or otherwise gain personal satisfaction. If that’s your motivation, you’ll be living the advice of “Find a job you love, and you’ll never work a day in your life.”

Many business owners have found this kind of happiness by building a product or company that allows them to feel personally fulfilled, and have reported living more quality lives because of it.

Cons: The flip side of working so hard to find your joy is that working so hard brings stress and possible health issues.

As I previously mentioned, business income is highly unpredictable and can depend largely on the entrepreneur’s ability to hustle and generate revenue. Staying on the grind generates stress; having employees that depend on you magnifies the stress by X.

Be aware of potential health risks associated with business ownership and make a proactive plan to mitigate unhealthy side effects.    

How Can Your Business Succeed?

Finally, after weighing these pros and cons, if you have decided that starting a business is right for you, it’s helpful to take a look at failed startups to see what you can and should do differently to succeed.

Here are the top five reasons businesses fail, according to CB Insights:

  1. No market need – In a nutshell, make sure that you’re offering something that someone actually wants to buy. Following your passion is ideal, but will it bring customers?
  2. Ran out of cash – Simple as that. This can be a symptom of other issues listed here, or the previously mentioned issues of unpredictable revenue streams or unwillingness to reinvest profits.
  3. Not the right team – Make sure your team brings a diversity of skills, experience, and opinions to weather the critical first years. Having a team of yes people helps no one.
  4. You were outcompeted – Don’t turn a blind eye to what the competition is doing. If they’ve built a better mouse trap, you may need to shift your focus to stay relevant.
  5. Price or cost issues – Make sure you are choosing the prices and price structure that make the most sense for your customers and product industry.

As you can see, so much about business success is dependent on making wise financial choices, which can be difficult to do when you’re juggling all the responsibilities of getting your business off the ground.

You don’t have to go it alone! A certified financial planner can help you navigate these decisions and give your business the best chance at success by starting on a solid financial foundation and creating a financial roadmap for where you want your business to go.

Are Two Heads Always Better Than One?

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If you’ve ever had a roommate and/or been married, you know how hard it can be for two people to work together for what is (hopefully) a mutually beneficial goal. Whether it’s to save money on rent, or simply because you love and want to build a life with someone, we enter into these interpersonal arrangements with the best of intentions to compromise with and respect our partner to achieve the best possible outcome.

Yet, based on the estimated 50% divorce rate in America, those intentions clearly don’t always pan out.

Why, then, do we think that a business partnership would be any different?

When you think about it, business partnerships take the same level of commitment and compromise to work as marriage or living together. And yet almost 70% of them face a similar fate of failure. I believe that this ultimate failure – like any relationship – can be due in large part to not asking the right questions.

So aside from analyzing the common pros and cons of forming a partnership, I recommend also asking yourself a series of questions that will help you determine what both you AND your potential partner can do to address hot button topics upfront and set realistic expectations for a balanced relationship.

First, let’s take a look at the essential pros and cons of a business partnership.

PROS

  • Your partner has skills, knowledge, connections or other beneficial offerings that you do not.
  • You don’t have to go it alone. Having someone to weather the storm of starting a new business can provide confidence and camaraderie.
  • The workload is divided, thus it’s easier to accomplish more.
  • Creativity or innovation can be sparked by having another perspective / sounding board.

CONS

  • Joint decision-making can be long and tedious, it will lead to disagreements and possible resentment, and it can ruin relationships.
  • You have to share profits or stock, and this can get ugly when you have to jointly decide how to spend or reinvest to grow the business.
  • Work ethic and responsibility are subjective. Again, a recipe for resentment.
  • You may be liable for your partner’s actions or activities.

Now, here are the questions you can ask to determine whether a partnership is right for you.


1. Are you a team player?

There’s nothing wrong in admitting you prefer to work alone. In fact, it’s very common for entrepreneurs to have lone-wolf tendencies.

However, overlooking this self-evaluation will lead to major problems down the road, when you resent not being able to make decisions on your own. If both you and your partner lack the ability to be a team player, your power struggle will undermine and eventually destroy any goodwill you may have.

Be honest about where you fall on the self-sufficiency scale and ask your potential partner to do the same.

Also, don’t forget to consider the most obvious question: do you even need a partner? Unless you have to bring someone on board for financial capital or for the skills they possess that are not easily acquirable, chances are you can do this on your own.


2. Can you accept differences among skills and roles?

Ideally, the division of labor will be divvied up into ways that play up your unique skillsets. For instance, one of you may handle clients, while the other handles the books. This division is one of the reasons people choose partnerships: to each bring your complementary skills together in a yin yang balancing act.

But what happens when that division leaves one partner feeling like they are working harder or more hours? Or not getting their due recognition? Or more passionate then the other? Or any other myriad way that feelings of inequality can rear their ugly head?  

What once seemed like a complementary style may now seem like a partner with differing levels of passion, drive, or working hours than you.

Can you recognize contributions that may look different on the surface, but bring equal value to the table? Or what will you do if there is genuinely an uneven distribution of work?


3. Do you have similar values and have you set clear expectations?

Choosing a partner should be like a job interview: you should be looking for the “best fit” candidate that shares your values and vision for the business. This may seem like a no-brainer, but it’s easy to get caught up in the excitement having a great idea or great chemistry together and forgetting to perform this exercise in due diligence (ask anyone who’s ever started a friend or family partnership – and failed).

Having this pointed and deliberate conversation can help identify the right partner and set clear expectations from the outset.

Ask your potential partner interview-like questions to help guide both of you toward a more grounded, realistic approach to how your business will run:

  • How do you handle adversity?
  • Where do you see yourself in five years? In ten?
  • How comfortable are you with risk?
  • Tell me about how you motivate yourself.
  • Can I contact your previous business associates?

Bottom Line

Business partnerships, just like any other partnership, rely on carefully selecting the right partner that will bring balance and value to the table…and then is continuously committed to working hard every day to meet shared visions and expectations.

Choosing to form a partnership may not be the best decision for everyone or for every situation, but it can be very beneficial if entered into for the right reasons and with a realistic understanding of both the positive gains and negative drawbacks.

If you decide to go down this path, it will be essential to build an operating agreement. Legal and financial professionals can help to set up protections for all parties involved, through good times and bad. Again, just like any relationship, the goal should be for all partners to do well and, if and when it’s time to part ways, for an amicable split that ends with dignity and respect.