In many ways, business partnerships are very similar to marriages. There is a fundamental difference though. Unlike the already high divorce rate in America (According to divorcerate.org, 50% of all marriages in the US end in divorce), some studies suggest that 60% or more of business partnerships fail within the first 5 years of being in business. With the odds stacked so heavily against partnerships, why are people still considering forming partnerships for business ventures? The answers lie in the benefits of having a business partner.
1. Complementing Traits - If both partners are good complements to each other the benefits may outweigh the risks of forming an intimate business relationship. A well-chosen partner can complement your weaknesses and improve your strengths.
2. Built-in Redundancy - What happens to a business if the sole owner has health issues, or wants to take an extended vacation? With a partnership, there is always someone there who can continue managing the business.
3. Sounding Board - An equity partner in your business generally will provide you better insights than a regular employee. The stakes are higher and as a result, having an equity partner in your business can provide you with invaluable insights and opinions.
4. Economies of Scale - Two people can achieve more than one. With two or more partners, you can participate in more business building activities than if you are on your own. It looks more impressive to the outside world if a "Managing Partner" shows up at an event, rather than a "Sales Person" or a "Marketing Manager"
What are some of the key issues you need to consider before signing on the dotted line of any partnership agreement, and how can you improve your chances of succeeding in your partnership?
1. Date before you get married - Don't rush into a partnership! Make sure you know the personal life of your business partner, as well as his or her financial situation before you decide to partner with the person. In many ways, your business partner will become a second spouse in your life. Make sure you know the person well enough before entering in any agreement with him or her.
2. Identify Strengths and Weaknesses - Make sure you are picking a good complement to your skill set. There is no need to get a partner with the same strengths and weaknesses as you. You want someone who is strong where you are weak and vice versa.
3. Explore each other's values - If one partner's sole motivation is to make money and the other's to be a humanitarian, you probably end up having a conflicting relationship. You will find out about each other's value system during the "dating phase" such as dinners, meeting each other's families, and participating in each other's lives.
4. Identify clear roles and responsibilities - Many partnerships are formed without a clear understanding of who is responsible for what. The result can be chaos and lots of arguments. Identify up front who is doing what in the business based on your strengths and weaknesses.
5. Ensure equal give and take - Equity in the business needs to be distributed evenly and just. If one partner puts in a lot more money than another, it doesn't make sense that both will get the same compensation and rewards. Make sure you keep track of the commitment each partner is making and provide for a larger return for the more involved partner.
These are just some of the key issues you need to consider before entering into a partnership. Make sure you are very clear about the risks and rewards of forming a partnership prior to engaging in one. A good business attorney can help you gain clarity in all of these aspects.
Sieber Consulting improves efficiencies, profitability and management of small businesses through the implementation of operational processes. Choose between our customized consulting services or our easy-to-use, affordable, ready-made business templates.
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