Background
Yesterday afternoon I had a business lady approach in need of some counsel on her intention to acquire a business partnership for a manufacturing concern. The tips I shared with her left her speechless. So today I thought I might as well give tips on structuring.
I had a partnership myself years ago that we dissolved after 3 years of operation and I have seen many more failing. Going into business with a partner has significant advantages. It may help you make the most out of shared resources and complementary talents between you and your partners or partners. However, there are important considerations you should take into account before jumping into a partnership.
Start by thinking about whether you really need partners. Being afraid to go into business alone, or lacking financing, skills or connections may be the wrong reasons for a partnership. You may be able to get someone to do something without giving away a share of your business. You could hire someone, hire a coach, set up a board of advisers or find a mentor to bring capital, skills, or a peer network to the table.
Get to know your partner first. It’s just like dating someone, see how they can complement your personality and skills. Know their values, personal goals and financial situation. Working with a partner who does not share your business values and ethical standards may discredit your reputation with clients, employees and even other partners.
You may ask for references, look at their presence online, and even run a background check. Here’s a comprehensive to do list.
Give a significant amount of unemotional thought to the following …
1. A written partnership agreement.
Partners should be willing to put an agreement to writing. Partners should be able to resolve any issues that arise by referring to the agreement. You may require a lawyer to help you craft a useful agreement.
2. Determine the roles and responsibilities of each partner.
This is about managing duties and expectations. Although partners don’t need to commit the exact same amount of time on the business, it is crucial that there is consensus as to expected time obligations. You will avoid resentment that may emerge when partners begin distributing profits and comparing them to individual efforts and results. This decision must avoid the emotion connected to a power structure. Every partner needs to be clear on her role, duties and responsibilities. Responsibility for day-to-day company direction must be based on what is best for the business enterprise.
3. Decide how you will handle partnership dissolution
Business partners will likely go on their separate ways at some point. You must prepare for that scenario by determining how partners will be compensated, resources divided, and clients served when the time comes. Emotions will undoubtedly run high if the partnership does not work out, so the best time to decide how to handle a break-up is before a partnership or operating agreement is signed. However, figuring out from the outset whether you need a partner and how the partnership will operate with regards to compensation, exit clauses, and roles and responsibilities, will give you a solid general framework for a successful partnership, and allow you to focus on your business.
Till next Tuesday.