Taking on a business partner is a big step forward for your business; it means working in collaboration with another corporation for faster and improved progress. While it’s an exciting new phase, this isn’t the place for haste. Take the time to understand your prospective business partner and what you are getting into with this alliance.
Talking to business professionals, we have compiled a list of the top things they recommend to consider when entering a business partnership.
“A strong, long-term business partnership requires clear, honest communication. Make sure you talk about your communication style and preferences before doing business with someone. Some people prefer to check in numerous times throughout the day, while others prefer a weekly check-in. Early agreement on a communication plan can help avoid future confusion and conflict. “The importance of direct communication cannot be overstated. When someone is caught off guard, emotions become involved.”
Tommy Gallagher, Founder at Top Mobile Banks
“In my opinion, the contribution of the partners is the most important thing to consider when forming a business partnership. Make sure you spell out each partner's role in the company's formation and ongoing finances. What will each partner pay to the business's start-up costs, and what will each partner's future duties be? Define what each partner will provide, not just in terms of money, but also in terms of time, effort, clients, equipment, and so on, in your agreement.”
Sep Niakan, Managing Broker Condoblackbook
“I cannot emphasize how critical this is! Trust me when I say that you and your partner(s) will not always agree on everything. You'll need to figure out how you'll handle the day-to-day management and long-term decisions. Who has the last say? Determine which decisions require a majority vote from all partners and which ones can be made by a single partner. You'll lay the groundwork for a more frictionless business by establishing a decision-making process that everyone understands and agrees on.”
Diego Cardini, Founder and Director at The Drum Ninja
“Don't actually write your business plan unless you and your partner agree on the same aspirations, goals, and vision for your new venture. Do you envision a part-time catering business that allows you to spend more time with your family while your partner dreams of opening the next Starbucks? If you want the business to flourish, you and your partner must have the same basic beliefs, goals, and work ethic.”
Tanner Arnold, President & CEO RevelationMachinery.com
“In the early stages of a business, an informal structure where each partner does what is needed at the time may succeed, but not in the long run. By providing each partner control over his or her domain, defining each partner's job title and responsibilities helps to eliminate conflicts. Employees and consumers benefit from understanding which partner is in charge of various elements of the company.”
Benjamin Rose, Co-founder of Trainer Academy
“Even if you're starting a business with your kindergarten best buddy, you'll need to create legal paperwork that covers your business structure, capital contribution, decision-making process, dispute resolution, and what happens if one partner wants to leave the company. It's easier to deal with any challenges that come if you go through all the things that could go wrong and how you'll address them.”
Andrew Chornyy, Ideologist and CEO of Plerdy
“When going into business with a partner, it's wise to consider which type of partnership is the best fit for you and your partner. The most common option is a general partnership. This is an agreement between two or more partners running a business that allows for equal division of all profits, liabilities, and management duties for each partner.
“Additionally, partners may decide to form a joint venture partnership. This is similar to a general partnership, but it is designed to be temporary. Often, a joint partnership is established when a certain phase of development has been completed or to help speed up certain processes, like business expansion, within the company. The joint venture partnership then expires once the specific strategic growth objectives have been met.
“You may also consider a silent partnership, which allows one partner to provide capital for the business but not participate in its day-to-day operations. Instead, the other partner assumes these responsibilities. And, depending on your profession, you may form a limited liability partnership (LLP) to receive limited liability protection and a pass-through tax structure. Forming an LLP is limited to professionals in roles licensed by the state, such as doctors and lawyers. Discuss these options with your partner(s) to determine which is the best fit for you and your business.”
Deborah Sweeney, CEO MyCorporation.com
“One should consider the potential business partner’s background performance, both their inside operations and public relations. You will learn much from how they perform and several things you may consider beneficial or harmful to your business.
Research on how they conduct their operations, also considering their workplace culture and ethics. You may look up their achievements as a business or recent cases of violations. Consider checking potential financial red flags that may also risk yours. You can also consider checking their face in public. It is beneficial to learn such things to gauge whether the partnership is safe to enter and ensure success for both your businesses.”
Tobias Rawcliffe, CEO at ST Saver
“Understand your potential partner's current financial situation. If they're in a lot of debt, it might not be a good idea to partner with them. Also, do background checks even if you think you know them well. See what kind of history they have so that there aren't any surprises down the road. Most importantly, have an attorney vet the partnership docs.”
Jordan Smyth, the CEO & Founder of Gleamin