How Do I Choose A Business Partner?
Posted on March 20, 2018 by Kim Clark
It is said that two heads are better than one and that is often true. When two people join forces to work on an important goal, expertise and resources are shared and the goal is reached more quickly. Moreover, there is someone available to help make decisions, someone to vent frustrations and celebrate victories with. Human beings are social animals. Most of us have an intimate partner in our life, or would like one. Many aspiring business owners and entrepreneurs would like to have a partner in their enterprise, as well.
A life or business partner can bring many advantages to a relationship, or can bring disaster. Most business partnerships fail and nearly 50 percent of marriages end in divorce. Your marriage partner and your business partner must each be chosen with care and an eye to the future. Opposites may attract, but they are usually unsustainable affairs. Shared values, goals, priorities, expectations, vision for the enterprise and complementary skills are the ties that bind.
Before you start talking partnership with your presumed intended, catalogue the resources that the venture needs to reach and sustain profitability. Consider what you are willing to give up to obtain those resources. If you need startup or expansion capital, approaching a lending institution may be the best strategy. If your financial projections indicate that revenues generated will allow you to repay the borrowed money within five years and your credit is good, talk to your accountant and banker and figure out a loan strategy. If specific expertise is what the business needs, then write-up job specs and hire employees.
If money is the primary issue and you prefer to finance privately, then some form of partnership is your money-raising strategy. Calculate the optimal amount of capital investment required and ask your accountant or business attorney to estimate how much ownership you will likely have to relinquish to your investing partner. If it appears that you cannot afford to keep at least 51 percent, then consider taking on two partners and giving yourself controlling interest. Never split 50/50, to avoid becoming deadlocked on important decisions.
In my business plan writing workshop, I emphasize that you have to know yourself when you’re in business. Think objectively about how much of a presence of others in your business you can tolerate. Your personality type may lead you to seek a limited or silent partner arrangement, a partner who mostly wants to make money and believes in your ability to operate the business wisely.
However, you may conclude that you need a general partner, one who makes both a monetary investment and contributes expertise and business acumen. You will then have to accept that there is more than one way to view challenges, opportunities and risks and that decision-making will be shared. Those realities are always big adjustments for the founding partner.
Additionally, you and the partner must carve out your respective roles and responsibilities in the business. Be sure also to address the amount of time the partner plans to contribute weekly. Can you live with that? The division of labor must be established and written into the partnership agreement. Check also the presumed partner’s financial history. Do not form a partnership with one who carries heavy debt.
Finally, include an exit strategy in the agreement. Sometimes things don’t work out and someone wants out. Protect the business and yourself with a partner buy-out option and provisions for the divorce, illness, or death of a partner. Make sure you don’t wind up in business with an ex-spouse, surviving spouse, or the partner’s children.
Thanks for reading,
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