It’s often joked that the primary cause of divorce is marriage. In business, you could say that the main reason for dissolution is a partnership!
All kidding aside, business partnerships can allow you to dip your toe into the entrepreneurial pool without having to feel like the weight of the world is on your shoulders. You may have the business skills, but you might not possess the risk tolerance, which is imperative of the entrepreneurial mindset. But while the thought of splitting everything 50/50 – or even 33/33/33 – can seem like a disaster in the making, entering into a professional relationship with someone on the same page as you can lead to beneficial results. It does have some drawbacks, but the advantages certainly outweigh any concerns you may have.
We have compiled a comprehensive breakdown of how to embark on a strategic business partnership.
1. How to Find a Business Partner
Unless you know someone from your inner circle who is on the same page as you when it comes to entering the entrepreneurial realm, you may need to go on the prowl of finding a business partner. For some, this is a difficult step to take because it may feel awkward to reach an agreement to form an enterprise together. On the other hand, this may be a positive move, considering there are no personal feelings at stake and your relationship is strictly business-related.
Here are some tips for finding a business partner:
- Think about your colleagues - past and present - and consider who would be suitable for the part.
- Use online networking or in-person events to locate potential prospects.
- Lay out the pros and cons of partnering with a family member.
- Locate experts in your industry who would be willing to co-own a business with you.
Now that you are aware of the strategies to employ to find a business partner, the next step is to figure out how to select the right partner. Here are some additional measures to use:
- Search for someone with complementary skills that bring something to the table.
- Perform research on the individual, such as their professional history, reputation and financial mishaps.
- Introduce an exit strategy when one party wants to get out of the partnership. No matter what, everyone must agree to this part of the arrangement.
- Initiate a trial run to see if this can work out. You don’t want to be six months into this agreement, and you two are fighting like cats and dogs.
The next step is to formalise the business partnership.
2. How to Form a Strategic Partnership
As any business or legal expert will tell you, the most critical aspect of formalising a business partnership is to get everything in writing. This establishes a firm, clear and straight forward structure that makes everything a lot easier to understand, whether it is separating who is responsible for what or how the assets are divided. But there are other things you need to consider as well.
So, what are some of the steps you need to take to ensure you have completed the partnership? Here are some ideas:
- Outline your core values and ensure that the other person shares these principles.
- Share your long-term purpose, such as why you are erecting this organisation and where you want it to be in five years.
- Ensure that both sides remain in constant communication. One of the reasons why many co-owned establishments fail is that partners have stopped communicating. It is critical that you and your partner feel comfortable talking about anything, even if it may result in hurt feelings.
- Discuss additional partnerships to create when it seems strategic and helpful to the overall business.
- Take your time in laying out the parameters, assessments, and settling disputes.
By incorporating these aspects into your working relationship, you’ll be able to utilise the many advantages of a strategic business partnership.
3. How to Avoid Conflict of Interest
It may not seem important at the beginning but determining your business partner’s conflicts of interest is critical to ensure that they are not investing in something outside your enterprise that can harm the business. But while many will think the other person as having a conflict of interest, you may have one, too, without even knowing it.
That said, here are some tactics to think about:
- Make a list that identifies situations that may result in conflicts of interest and steps to take to rectify the situation.
- Request information about outside investments to ensure the person is not profiting at your expense.
- Take on clients together, not separately, to prevent conflicts of interest that would have arisen. This goes back to the communication recommendation from earlier!
- Be extra careful when working with family members because there will inevitably be conflicts of interest. Do your due diligence.
A seasoned entrepreneur may possess a treasure trove of investments, so there could inevitably be at least one conflict of interest. As long as you research the person’s background, and that individual is open and transparent the entire time, you can avoid this headache.
4. How to Divide Assets
Let’s be honest: When you decide to co-own a company, you are not immediately thinking about a split in the next few years. You want this to be a fruitful endeavour to make as much money as possible. Unfortunately, it’s a good idea to prepare yourself for that gloomy day. Which is why you should know how to divide assets between you and your partner.
Here are some suggestions to make the process as simple as possible:
- Review your partnership agreement that offers a legal entitlement to an equitable share of the assets. If you have one partner, then they get 50%. Or, if you have two partners, then they each receive one-third.
- Peruse legal statutes to help guide you through the process of dividing assets. The legal ecosystem can be challenging to navigate for the neophyte, so it would be sensible to hire an attorney to assist your firm.
- Understand that losses need to be paid first out of your profits and capital. If that is not enough, then these deficiencies of capital must also be covered by the partners individually.
- Realise that assets are only divided when partners agree upon dissolution. It should be noted that assets used by the partnership but were not formed as part of the partnership; those assets will not be divided upon dissolution.
- This is where your legal agreement comes in handy because you may have already tackled this issue ahead of time – and when cooler heads prevailed!
If the entire business is not straight and down the line, then you will be unable to mitigate a disaster and will end up fighting over the dividing of assets. Put simply, get everything in writing!
5. Pros and Cons of Business Partnerships
Like anything else in life, there are pros and cons to enacting a business partnership. Depending on the situation and the company, the advantages may outweigh the disadvantages. Whatever the case may be, it is important to know the benefits of these types of arrangements ahead of time.
- A partner brings additional knowledge to the enterprise that can help grow the business and accelerate your brand strategy initiative.
- Your colleague will offer unique perspectives and strengths to the project that have essentially become a rewarding habit.
- A partner may have a larger network and access to a greater number of prospects that could elevate your Rolodex of clients.
- There is a reduced financial burden on your end since there is an extra person to ease the monetary pressures.
- It always helps to have an extra set of hands and eyes and two minds on an entrepreneurial endeavour.
- Business partnerships could lead to less paperwork and fewer tax forms to fill out.
- You need to discuss with your partner about any ideas you may have, which could delay things and take longer to execute.
- There will be plenty of disagreements that could initiate tensions.
- The business is doing so well that profits are ballooning, but they need to be cut in half. You might think that you were the main cause of success, which may prompt you to convince yourself that you deserve more of the profits. Hint: Your partner is probably thinking the same thing at this point.
- You are taxed at an individual rate, which could be more than if you paid business taxes as a sole proprietor.
The thought of sinking and swimming every workday with the same person may be a frightening prospect. But, like a marriage, the peaks and valleys are worth it if you can make it work.
6. Tips for a Successful Business Partnership
According to Failory, 90% of startups fail. In other words, a large number of business relationships end prematurely, which may or may not be good for the business. Does this mean you are doomed from the start? Not quite. But it is a good idea to figure out how to maintain a successful partnership.
- Define your roles from the very beginning, so everyone is on the same page, and nobody is stepping on the other’s toes.
- This cannot be stated enough: Communicate regularly. Whether it is a morning meeting or an end-of-week comprehensive powwow, the important thing is to communicate verbally and in person!
- Respect the other person at all times, even if they have a different viewpoint.
- Take full responsibility for your actions.
- Praise your business partner on a job well done.
- Avoid allowing your grievances to fester when you feel upset or discontent with your partner.
- Support one another when the going gets tough or the other person is in a rut.
- When there is something significant you are working on, be sure to get the other person’s approval.
- Work on the business budget together and refrain from veering away from the dollars and cents.
Remember, you are in this venture together, so you are both relying on each other to be successful. This is not the time for bravado, showboating and gaining the upper hand on somebody else. You want this partnership to be beneficial and worthwhile, so do your best to facilitate a cohesive system that cultivates camaraderie, dedication and success. You two depend on each other!
In today’s economy, it might be more practical to avoid going in alone in establishing an enterprise. Plus, thanks to technological advancements and our unprecedented digital capacity, the opportunities to connect with like-minded folks and maintain legal operations are endless.
The only hurdle business partnerships need to overcome are satisfying consumer demand and ensuring that you and your colleague can keep the firm churning out incredible profit margins. When the money is rolling in, it is worth it seeing your partner all day every day, including weekends and holidays!
Have you ever been in a business partnership? What was your experience? Share your thoughts in the comments section below!