Business partnerships can make or break a good business idea. They can be incredibly valuable to a new business or even an existing one. As the saying goes, two heads are better than one.
However, it’s important to be cautious when taking on a new business partner. How do you know they’re right for the role? What do you do if something goes wrong? Below we’ll discuss the important things to consider before entering into a partnership.
Family or friends
A word of caution for those looking to go into business with friends or family members.
Getting on well is a great first start but how will your friendships fare with the pressure and stress of running a business? If it all turns into a disaster, your personal relationships may suffer, so it is a risky option.
In most cases a business partner will become a shareholder (who owns part of the business), as opposed to just being a director (who manages the business). A shareholder will receive dividends (portions of the profits) in relation to the size of their share, which will be split with yours.
You will need to agree on what percentage of the company your partner will own and have that down in writing. A 50—50 split might seem fair at first but if someone is investing more or has more responsibilities, resentment might start brewing.
What happens when you want to go separate ways?
There may come a time when either one of you decides to back out and go their own way. The chances are this will happen at some point because things change and businesses often don’t last forever.
To prepare for this event, it helps to have a plan in place at the start, preferably drawn up by a legal professional.
Get everything in writing
It doesn’t matter how long you’ve known them or how much you trust them, you need to get all agreements in writing. Going into business with friends or family can unfortunately make people a little too relaxed and even unproductive because they only need to answer to a friend/family member.
This can be a hard habit to get out of so it’s best to draw up some agreements in writing before you become partners. It’s always best to consult legal advice with things like this so, should the partnership fail, there’s a clear next step and less argument over who gets what.
Write up a business plan together
Even if you’ve already been in business and your partner is new to this, it’s a good idea to write up a plan for the next few years together. This gets all the ideas out there in the open and gives you both some guidance for the years ahead. It can also be referred to in order to check you’re on track to achieve what you planned.
Are you considering a business partner? What steps have you taken to ensure it all goes well? Please share your thoughts.