Business Partnership: 5 Things You Should Know Before Starting A New Partnership
Are you planning to start a new business partnership? Successful businesses are often founded on amazing partnerships. The thought that you don’t have to shoulder all the weight and demand of your business alone can be relieving. Hence, the reason why the idea of business partnerships is usually a dream come true for most entrepreneurs.
However, getting a business partnership does not automatically imply that your business will thrive and remain successful. Although businesses thrive with great partnerships, there could be no worse recipe for a business disaster than bad partnerships.
So, when it comes to taking your business to the next level, you should focus on finding the right partnership. This will be more profitable for your business in the long run.
In this post, we will take a quick look at 5 important things you should know before starting a new business partnership.
5 Important Things You Should Know Before Starting a New Business Partnership
What do you need help with?
The beauty of any form of partnership comes when everyone has fully understood their roles and is playing them effectively. This cannot happen when you have not taken the time to write down your expectations from a new partner.
The first step to starting a new partnership begins on paper. Write down your expectations from the partnership. State responsibilities, boundaries, compensation, and exit strategies clearly before commencing your search for a new business partner.
Your list will be like a compass. It will help you to quickly identify the right partner for your business. Furthermore, having a clear-cut list of your roles will help your new partner understand what is expected of him. Hence, giving you a more precise way to evaluate the success of your partnership.
Jack Canfield stated that “people typically have different interpretations and understandings when responsibilities are not codified in writing.”
Take the time necessary to study a potential partner
When it comes to finding a good business partnership, you must focus on entering a partnership with the right person. You need to look beyond the immediate benefit for your business. Foresight is a very important attribute any successful entrepreneur should have.
There are lots of similarities between a marriage and a business partnership. Hence, the need to invest the necessary time to study your partner. You have to ensure that you both share similar values.
Ideally, you will need a minimum of a year to study your potential business partner to truly understand his personality. According to scientific and psychological studies, you can only know the true nature of a person after one year. One of the biggest mistakes you can make when it comes to business partnerships is going in too quickly. Do not proceed if you stumble on traits that will eventually harm your business.
Identify the type of business partnership you want
Running a business partnership is often smoother when everything is documented and legally binding. Hence, the need to decide on the legality aspect of your business partnership structure. Decide on the type of partnership that will best suit your business. The three main types of business partnerships include:
· Limited Liability Partnership
Do you want a business partnership that will offer the most protection to both partners? Then the limited liability partnership is the best option. This type of partnership limits the financial responsibility of each partner to the business.
· Limited Partnership
This type of partner works best when both partners have different levels of involvement in the business. In this partnership, only one of the partners has unlimited liability. The personal assets of the other partner cannot be tied to the business because his liability is limited.
· General Partnership
One of the benefits of opting for a general partnership is that setting up is less complex than the others. You often do not have to file legally. However, it provides minimal liability protection for both partners.
Write down your partnership dissolution strategy
When planning to go into a business partnership, hope for the best. However, do not turn a blind eye to the day the partnership will end. Many business owners live on the moon when it comes to the longevity of their partnership. Don’t get us wrong, there is nothing wrong with hoping for the best outcome. However, history has shown that most business partnerships eventually come to an end.
This is why you need to write down your partnership dissolution strategy. You have to decide on how you will deal with a partner that decides to move on. The best time to do so is when both of you are in a neutral place. This way, your decisions are not based on any relationship strain.
Your dissolution strategy should include how you would compensate for your partner’s time and resource investments into your business. If you eventually decide to sell your business, how do you intend to share the proceeds?
How do you intend to manage business finances?
Nothing causes more strain to most relationships than money matters. Hence, the need to have a clear-cut strategy on how you intend to manage the cash flow of your business. The partnership was created to ensure that your business thrives. It is, therefore, important to talk to your partner about money matters right from the start.
You have to discuss and decide if:
- You both will need to invest personal income to grow the business.
- Both of you are comfortable with running the business on loans
- The financial strategy of the business will guarantee both short-term and long-term success
- Both of you will take a salary from the profits generated by your business or keep reinvesting them.
Communicating these details with your partner reduces the chances of frequent misunderstandings.
One way you can ensure that you have a beneficial and durable business partnership is by writing down your expectations. Also, take all the time necessary to study and know a potential partner. Once you’ve done that, share your thoughts with your partner and discuss improving them if necessary. Check out our blog for other interesting and impactful articles.