Starting a business partnership is especially beneficial for small businesses and start-ups. According to the CEO of Power Moves-a marketing agency for small businesses, Shawn Prez, partnerships provide extra support and opportunities to expand your products or services without hiring more staff and incurring additional expenses. It also exposes you to new business opportunities and added benefits like reduced tax, more revenue, and a better work-life balance.
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However, it can quickly fail if you don't take the proper steps. Research shows that about 70% of business partnerships fail for reasons such as unequal commitment among partners, personality clashes, and mixing business with personal relationships. According to Arete Business Methods owner Bennet Johnson, people commit with emotions, not thought, leading to inevitable failure. Therefore, it’s prudent to consider the following tips for your partnership to succeed.
Ascertain your need for a partner
You need to know why you require a partner, especially as a small business owner. While it’s a strategic business move, committing for the wrong reasons might cause more harm than good. Therefore, you should carefully analyze your needs empirically and tailor your partnership for that purpose. For instance, you should determine if your potential partner possesses the skills you lack or share the business’s same vision. Without a common ground, it's bound to fail, so you should ascertain if they’re willing to make the same efforts as you.
It’s also best to avoid making decisions based on your emotions. For instance, you may partner with your friend because you wish to generate more income while addressing consumer needs. However, merely committing because they’re your friend might take your business nowhere and even ruin your relationship should disagreements arise. It's also advisable not to partner due to fear or lack of financing, as it may breed resentment, power struggles, and ultimately failure. By all means, be aware of your partner’s temperament to determine how to work with them for success.
Run a background check
While transparency is critical in all business relationships, you can't be too sure of a person's background. Therefore, it’s vital to confirm certain aspects of your partner for your business’s best interest. Canfield Training Group's CEO, Jack Canfield, advises that you liken a partnership to a marriage and take your time to know your partner before committing to them. He suggests that you study them for at least one year and run all necessary background checks to determine if they have clean records. Fortunately, online sites such as Checkpeople.com can generate a detailed report of their lives for an informed decision.
Partnership increases your cash flow and increases your financial investments in the business, which makes it critical to determine your partner's financial circumstances. A background check will reveal bankruptcy, failed companies, and lawsuits that aren't ideal for your business. It also indicates if they’ve been involved in shady investments, tax evasions, and other unethical behaviors. Accessing this information will prevent you from partnering with the wrong people and save your business reputation.
Determine your partners’ goals and values
Aligning with someone who doesn't share your business dreams is a recipe for failure, as you would move in opposite directions. Therefore, you need to be sure of their aspirations and goals concerning your business to ascertain if they’re suitable for you. Experts suggest that you both have similar ideas on your business structure and where your venture should be in a few years. Perhaps you both have the same dream but different ways to achieve it. In that case, you may reach a compromise or halt the partnership to avoid future disagreements.
You may look out for specific positive values such as trustworthiness and reliability in your partner. You should reconsider aligning with them if they didn't stay in partnerships for long, as they can bail on you. The ability to settle conflicts amicably is also vital, so you should be sure your partner is willing to talk things out when you disagree. A grudge-holding ally might be a liability instead of an asset. You may also align your business with people who don't get discouraged by setbacks and will stand by you in tough times.
Develop a written partnership agreement
For a business partnership to succeed, both partners must communicate their expectations and come to a mutual understanding. For this reason, you should create a written partnership agreement to cater to this need. A partnership agreement states the terms and conditions of your relationships, such as partnership duration and termination, ownership percentages, and profit and loss distribution. It also deals with any disagreement that might arise from your partnership.
While it might be convenient, it’s best to avoid a DIY partnership agreement as it might not have the required legal elements to make it valid. Besides, it might make it difficult to solve any disagreements and lead to personal liability issues and business collapse. For the best results, you may visit sites like Fleeson.com to employ the services of credible attorneys. Doing this will help you craft a valid and all-encompassing partnership agreement that states your duties and prevents tax, legal and liability issues. A professionally crafted agreement will effectively address business litigations with ease.
Outline your roles and responsibilities
It’s vital to establish each partner’s roles and responsibilities to ensure business success. It keeps you accountable for optimizing the business’ core components and helps develop an organizational chart to make expansion management easier. While people might assume that the 50/50 approach to role sharing is ideal, it might not always apply to all business partnerships. Therefore, it's essential to communicate with your partners what aspects of the business you can handle easily. You may adopt the 70/30 or 60/40 approach if you contribute more to running the business than your partner.
It’s also prudent to determine the partnership structure to ascertain how you’ll distribute your responsibilities. You can opt for a general partnership if all partners will equally participate in the daily business operations or a limited partnership if some partners can't be present daily. You may consider your strengths and weaknesses before taking on a role for maximum productivity. You may also have regular meetings where you assign tasks and completion dates to each other for easier monitoring or write down business management needs lists and create job descriptions for them.
Create an exit plan for each partner
While you may not wish for a partnership breakup, one partner may decide to go another way, which is why you should strategize for this purpose. Experts suggest that you include an exit strategy in your business plan and partnership agreement to ensure that you protect your interests and minimize your losses. While it can be challenging to lose a partner, it's best to forgo emotions and understand why they’re leaving the business.
Perhaps, you may opt to buy your partner's business shares to keep the company running or groom a third party to take over from them. It's also advisable to communicate honestly to determine when a partner decides to leave and settle all debts before distributing the assets to avoid incurring personal liabilities. You may also sell the business partnership to someone else, although you should buy your partner out of their share before the sale. However, if you opt for a partnership dissolution, you may develop a plan for the proper protection of partners' rights. It's advisable to let your attorneys guide you through the dissolution processes.
Forming a partnership can be rewarding when done correctly. Hopefully, you’ll follow these tips for a more productive business alliance.
This is a contributed post.
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