Choosing a business partner is like choosing a life partner….Marry in haste, repent in leisure, as the old adage goes.
When a business partnership goes wrong, it can be as stressful and as financially devastating as a divorce. So here are our Do’s and Don’ts before entering into a business partnership.
- DO consider why you need a partner in the first place
Is it because you need an infusion of cash? Or do you need expertise? If it’s just the cash, then consider other options before you take on a partner – a partner should bring experience and expertise to the table that complements your business skills.
- DO make sure that you both have equal “skin in the game”
Equality is everything. Both partners should have the same assets or value at stake. Money arguments will tear a partnership apart before anything else. Also, you need to assess each others financial situation. Can you both have a period of time when you don’t take any cash out of the business? Or does one of you have financial commitments that must be covered? Be clear from the start what the financial consequences of the partnership are, and that both partners can commit to this.
- DO make sure that you are both contributing the same time and energy to the business.
This means taking into consideration both partner’s life style…..does one of you have a young family that means a commitment to school runs, after school activities, and time off during summer holidays? Do you have the type of business that will be affected by this? Resentment can build if it seems that the majority of the workload falls on one partner’s shoulders.
- DON’T pick a partner that is exactly like you
If you are a numbers person, but don’t like to be customer facing, then don’t pick another introverted accountant as a partner! Pick someone who is outgoing who will love to network and chat with customers. Divide up the business activities according to strengths and skill sets.
- DON’T enter into a partnership without a legal contract.
It may sound like overkill, but once you have finished toasting each other with champagne and the honeymoon is over….then comes the daily reality of owning and running a business, so make sure that you have the obligations, responsibilities and expectations of both partners in a legally enforceable document. Not so long ago, an acquaintance of ours joined forces with a builder in a joint real estate development project. There was no contract specifying what each partner was responsible for, so consequently, one partner ended up with a $400k bill. After spending another $30k on lawyer’s fees, a judge threw the case out of court, because there was no agreement in writing. All of this could have been avoided by spending less than $500 to have a contract drawn up.
Lastly…..
- DO have an exit plan.
If one partner wants to get out of the business, make sure there is a plan in place. Can the other partner carry on alone or bring on another partner? How will you value the business if one partner is to be bought out? Knowing what the end of the business will look like, right from the beginning, will not only give you peace of mind, it will also focus your business strategy, especially if the goal is to sell the business completely.
Like a marriage, nothing is guaranteed – starry eyed declarations of undying love can morph into ugly battles extremely quickly. But, if you do the ground work, communicate and work at it, like all successful marriages, you can live successfully in business ever after…..
