Build a Business Partnership That Works
Finding a reliable and trustworthy business partner can be challenging, which is why many entrepreneurs choose to start a business with family or friends. While this may seem easier, it often presents its own set of challenges. If not handled well, it can damage personal relationships, including friendships, marriages, and family ties.
Advantages and Disadvantages of a Partnership
Starting a business with a partner can be advantageous because it combines the knowledge and experience of multiple people. This often means more funds, a broader network, and more potential customers. However, partnerships also have their drawbacks. You will need to share both the profits and control. Unlike a sole proprietorship, where decisions are made independently, a partnership requires consensus, which can sometimes be difficult.
One tip: Avoid naming your business after both partners, as this can limit future expansion opportunities.
Guide to Successful Business Partnership
Choose a Partner with Complementary Skills
Select a partner whose strengths balance your weaknesses. For instance, if you’re good at sales but lack administrative skills, find a partner who excels in detail-oriented tasks. This ensures all aspects of the business are covered effectively.
Select a Partner with Similar Values
Ensure you and your partner share the same goals and vision for the business. Misaligned objectives, such as one partner wanting to sell the business quickly while the other wants to build a legacy, can lead to conflict.
If partnering with someone you don’t know well, conduct thorough due diligence. Speak with their former colleagues, review their social media profiles, and perform online searches to gather more information about their background and reputation.
Put It in Writing
Draft a formal partnership agreement that outlines each partner’s contributions, salaries, decision-making authority, and conflict resolution processes. This legal document is essential, even when partnering with family or friends.
- Contributions and Salaries: Define whether earnings will be split equally or based on investment and contributions.
- Titles and Decision-Making: Decide on titles, roles, and who has the final say in decisions. Outline processes for resolving disagreements.
- Growth: Determine if and how the partnership agreement can be modified, and how new partners can join.
Plan for What-Ifs
Address potential future scenarios in your partnership agreement, such as the departure or death of a partner. Decide whether the remaining partner has the first right to buy out the departing partner’s shares or if they can be sold to outsiders.
Select the Right Business Structure
Choose the appropriate legal structure for your partnership, whether it’s a general partnership, limited partnership, limited liability partnership, C Corporation, or S Corporation. Each structure has different implications for liability, taxes, and continuity. Consult with an attorney or advisor to determine the best option for your situation.
Communicate
Effective communication is vital for a successful partnership. Address issues openly and sensitively. Here are some tips to keep communication flowing:
- Regular Meetings: Schedule regular meetings to discuss both business and personal well-being.
- Frequent Check-Ins: Maintain daily touchpoints, even if it’s just a quick text or email.
- Active Listening: Listen carefully to your partner’s perspective and work together to make decisions.
- Resolve Conflicts Quickly: Don’t let anger linger. Resolve issues calmly and promptly.
- Celebrate Together: Celebrate milestones and successes, both big and small.
Be Honest
Trust and honesty are crucial in any partnership. Address issues as they arise to prevent resentment and ensure a strong, collaborative relationship.
By following these guidelines, you can build a successful and harmonious business partnership, enhancing both your business prospects and personal relationships.
Final Thoughts
Starting a business with a partner can be incredibly rewarding, but it requires careful planning and clear communication to succeed. By choosing a partner with complementary skills and shared values, putting a detailed partnership agreement in writing, selecting the right business structure, and maintaining open and honest communication, you can build a strong foundation for your business.
Remember, the success of your partnership depends on your ability to work together towards common goals and navigate challenges effectively. Whether you’re starting with a family member, friend, or a new acquaintance, these strategies will help you create a productive and harmonious working relationship.
If you have any questions or need further assistance in setting up your business partnership, don’t hesitate to reach out to us. We’re here to help you every step of the way.
Connect with Sam Pugliese to learn more about how we can support your business journey.
