Howdy partner!
It is said that two heads are better than one and that is usually true. When two people join forces to work on an important goal, experience and resources are shared and the goal is achieved more quickly. In addition, there is someone available to help make decisions, someone with whom to vent frustrations and celebrate victories. Human beings are social animals. Most of us have an intimate partner in our life, or would like to have one. Many aspiring business owners and entrepreneurs would also like to have a partner in their company.
A life or business partner can bring many advantages to a relationship, or it can bring disaster. Most business partnerships fail and nearly 50% of marriages end in divorce. Your marriage partner and business partner must be chosen carefully and with an eye to the future. Opposites can attract, but they are usually untenable affairs. Shared values, goals, priorities, expectations, company vision and complementary skills are the ties that unite.
Before you start discussing partnership with your prospective suitor, catalog the resources the company needs to achieve and maintain profitability. Consider what you are willing to give up to obtain those resources. If you need start-up or expansion capital, approaching a lending institution may be the best strategy. If your financial projections indicate that the income generated will allow you to repay the money borrowed in five years and your credit is good, talk to your accountant and banker and figure out a lending strategy. If specific experience is what the company needs, write job specifications and hire employees.
If money is the main issue and you prefer to finance privately, then some form of association is your strategy for raising money. Calculate the optimal amount of capital investment required and ask your accountant or business attorney to estimate the amount of property you will likely have to relinquish to your investment partner. If it seems like you can’t afford to keep at least 51%, then consider bringing in two partners and giving yourself a majority stake. Never split 50 – 50, to avoid deadlock on important decisions.
In my business plan writing workshop, I stress that you have to know yourself when you’re in business. Think objectively about how much of the 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 primarily wants to make money and believes in your ability to run the business intelligently.
However, you may come to the conclusion that you need a general partner, one who will make a monetary investment and bring experience and business acumen. Then you will have to accept that there is more than one way of looking at the challenges, opportunities and risks and that decision making will be shared. Those realities are always big adjustments for the founding partner.
In addition, you and the partner must define your respective roles and responsibilities in the business. Also be sure to address the amount of time the partner plans to contribute on a weekly basis. Can you live with that? The division of labor must be established and written in the partnership contract. Also check the financial history of the alleged partner. Do not form a partnership with someone who has a large debt.
Finally, include an exit strategy in the agreement. Sometimes things don’t work out and someone wants out. Protect yourself and the business with a partner buyout option and provisions for a partner’s divorce, illness or death. Make sure you don’t end up in business with a former spouse, surviving spouse, or the couple’s children.
Thank you for reading,
Kim