In business partnerships, many businesses consider taking on business partners when they are tired of shouldering the burden of running their business alone, or they have come to realize the impact of building networks.
If you are at the point of jump-starting a new business partnership with anybody, you should know that; having a business partner is precisely what it sounds like. Having a partner means choosing someone you work well with, whom you can share business goals and ideas with. A business partner is someone who can complement your strengths, weaknesses and skill set, and this should be the first thing you look for.
A lot of good can come out of forming a business partnership. Think of it as an opportunity to combine resources you don't have to improve your business. Here are 5 things you should consider before choosing a business partner.
Set clear expectations from the beginning.
In partnerships, every party has to understand their roles and responsibilities from the start. Therefore, make it a priority to outline your expectations of each other, and clarify expectations, boundaries, contributions, compensations and the exit plan–the point at which the partnership should be terminated.
Start with a crystal clear list of all the above to help the partnership start smoothly. That is the only way to start a successful business partnership.
Outline how you'll manage business finances
This is very crucial in any business partnership. It might be a tough conversation to have, but it's essential to clarify how the profit is split and how finances are managed. The goal for you and your business partner is to make money; that cannot happen if you don't do business correctly.
Here are a few things you'll want to consider concerning finances:
- Where is capital coming from- Will both of you contribute personal funds to grow the business?
- Are you comfortable taking loans and debts?
- How will you manage the business finances in the long run?
- What are your salary structures like? Will you take a salary or focus on reinvesting in the business?
Decide on the type of legal partnership.
A partnership should always be documented and legally bound. Thus you'll need to decide on your legal business structure. There are three main types of partnerships, so choose the one that best suits your business style. They are:
General Partnership: This type of partnership is straightforward and simplified, and there is often no need to file the partnership legally under the law. It's easy to dissolve, both parties in the partnership are liable for each other's faults and errors in the business, and the is almost usually no legal protection.
Limited Liability Partnerships: This type of partnership allows for a structure where each partner's liabilities are limited to the amount they put into the business. A limited liability partnership limits each partner's financial responsibility to the business. This structure will provide the most protection to both partners.
Limited partnerships: This is a form of partnership in which some partners contribute only financially and are liable only to the extent of the amount of money they have invested. In a limited partnership structure, limited partners are shielded to the extent of their investment. This type of partnership is typically chosen when both partners have different levels of involvement in the business.
Write down your partnership dissolution strategy.
Partnerships cannot last forever. Running a business is dynamic, and there will come a time when each party wants different things.
From the onset, decide what happens when one partner decides to move on and how they will be compensated for their time and involvement in the business. Or, if the business gets sold off, how much does each partner get; so partnerships don't always end with bad blood; keep that in mind.
It would help if you had a lawyer.
If you remember the interview with the lawyer on things small businesses should know about, it was stated there. But to reiterate, before jumping into a business partnership, consult a lawyer for legal advice.
A lawyer's service is tied to working out the best-suited type of agreement for you and your partner, and it's really in your best interest to go the extra mile.
Understanding the different dynamics of a business partnership is necessary before embarking on anything with a potential partner. Avoid jumping into a partnership when you're clueless about expectations.
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