Thinking of starting a business with someone? Or joining forces with another small business owner in order to share resources or expand services?
It seems like a good idea, but forming a business partnership is a lot like getting married. Even if you have complementary services, you have to think twice, or even thrice, before formalizing your business tie-up. Here are some things you need to consider.
Form a strong partnership agreement
Ask a lawyer to help you draft a fair partnership agreement. How will you divide the workload and effort? And how will that determine the split in profits? It’s crucial that you immediately clarify everyone’s roles and responsibilities, and that everyone feels comfortable with their share in their profits. A lawyer can also help iron out details like personal liability.
Set performance measures
All business partners must be accountable for their work. Set concrete measures for performance and clarify the value it gives to the company. This will avoid the bickering and resentment that comes from partners who feel that ‘they’re doing all the work’ or that the others are ‘just deadweights or profit leeches.’
Aside from accountability, consider how you will resolve disagreement or conflict. Who acts as the ‘leader’ or the ‘last say’ in certain business decisions? Who sets the policies? As the saying goes, too many cooks can spoil the broth. While you can consult each other, everyone needs to agree on their particular ‘business territories.’ Maybe someone can spearhead and lead the marketing side, while the other focuses on the technical aspect. Examine everyone’s strengths and weaknesses, experience, and personality.
Prepare for every scenario
What will you do if a partner decides to leave the business? How will you dissolve his share in the company, especially if it has grown over time? Or, what is the company’s ‘share’ in the repair, everyday cost, and maintenance of any personal equipment that is being used for the business? This can include cars, laptops, cell phone bills, Internet bills—what is reimbursible, and what is not?
Photo from mithmeoi.net