Starting a business with a partner offers many benefits, not the least of which is having someone to share the many responsibilities of running a business. But partnerships can quickly go bad if you don’t give it ample forethought and planning. Consider these pros and cons to be sure your partnership lasts.
A business partnership formed without necessary forethought is likely to be doomed to failure. With the proper planning and consideration, though, a partnership can be an unequivocal success. It is the simplest and least expensive co-owned business arrangement. Additionally, businesses with multiple owners are more likely to survive longer than sole proprietorships, says Economist Brian Headd of the U.S. Small Business Administration.
As with other business considerations, though, partnerships can be a good or bad thing depending on the parties and circumstances involved.
Some possible pros:
Shared cost of start-up.
Shared responsibilities and work.
Shared business risks and expenses.
Complementary skills and additional contacts of each partner can lead to the achievement of greater financial results together than would be possible apart.
Mutual support and motivation.
Some possible cons:
Partners in a general partnership are jointly and individually liable for the business activities of the other. If your partner skips town, you’ll be liable for all the debts, not just half of them.
You do not have total control over the business. Decisions are shared, and differences of opinion can lead to disagreements, a “falling out,” or even one partner buying out the other.
A friendship may not survive a partnership. Keep in mind John D. Rockefeller’s famous words: “A friendship founded on business is a good deal better than a business founded on friendship.”
Before entering into a partnership, you would be well served to first determine if you yourself are cut out to be the “partner type;” and if so, to thoroughly investigate prospective business partners as well.
Are you the business partner type?
Do you prefer to do things solo? Be aware that the longer you’ve worked for yourself, making decisions without consulting anyone else, the more difficult you’re likely to find sharing the decision-making.
There’s also a chance that one business partner may not work as hard as the other, but will want the same rewards as the more valuable partner. If you have a low tolerance level for this type of inequity, partnership may not be for you.
Is your prospective business partner a good match?
A business match is much like a marriage, and just as one would normally take great care, time and consideration in the selection of a mate, so it should be in the selection of a business partner. During your “dating” period, here are some questions to ask yourself to find out if you’re compatible:
Do we have the same motivation, values and similar work habits?
Do we have a similar vision, ideas and objectives about how to run the business?
Is each of our strong points and skills complementary to one another?
Are we both able to communicate well with one another in a pleasant, respectful and comfortable manner?
In your gut, do you trust this individual?
You will also need to do some research about your prospective partner. Check out the individual’s background thoroughly by, for example, talking to former employers or business partners.
As tempting as it is to go into business with a friend or relative, be aware that there’s a big difference between getting along with someone on a social basis — and getting along with the same individual amidst the daily stress and strain of running a business. Many a friendship has been lost forever to a business partnership gone bad.
Since a partnership is typically much easier to get into than to get out, you’ll want to achieve absolute clarity at its onset. Avoid any potential problems by making sure duties and responsibilities of each partner are detailed in a legal agreement. This agreement should include and set forth: division of labor including who’ll be responsible for making purchase decisions; how much capital each will contribute; who owns what; how decisions will be made, profits will be shared, disputes will be resolved; a buy-sell agreement; and who will be entitled to what if the partnership doesn’t work out.
Involve a lawyer and an accountant from the outset to help form your partnership and to draw up legal agreements. And don’t forget, take your time. Just like a good marriage, you’ll want this business partnership to last.
Partnerships can be challenging- Utilize the ME IN TEAM approach and move cautiously through the murky business waters. Enjoy your JOURNEY!
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