Getting to a business partnership has its benefits. It allows all contributors to share the bets in the business. Depending on the risk appetites of partners, a company can have a general or limited liability partnership. Limited partners are only there to provide funding to the business. They have no say in company operations, neither do they share the responsibility of any debt or other company obligations. General Partners operate the company and share its liabilities too. Since limited liability partnerships call for a lot of paperwork, people tend to form general partnerships in companies.
Facts to Think about Before Establishing A Business Partnership
Business ventures are a excellent way to talk about your profit and loss with somebody who you can trust. But a badly implemented partnerships can prove to be a tragedy for the business.
1. Being Sure Of Why You Want a Partner
Before entering a business partnership with someone, you have to ask yourself why you want a partner. If you are looking for only an investor, then a limited liability partnership ought to suffice. But if you are working to create a tax shield for your business, the general partnership could be a better choice.
Business partners should complement each other concerning expertise and skills. If you are a tech enthusiast, teaming up with an expert with extensive advertising expertise can be very beneficial.
2. Understanding Your Partner’s Current Financial Situation
Before asking someone to commit to your organization, you have to understand their financial situation. When starting up a company, there may be some amount of initial capital required. If company partners have enough financial resources, they will not need funding from other resources. This may lower a firm’s debt and increase the owner’s equity.
3. Background Check
Even in case you expect someone to become your business partner, there’s no harm in doing a background check. Calling a couple of personal and professional references can provide you a fair idea in their work ethics. Background checks help you avoid any future surprises when you start working with your organization partner. If your company partner is accustomed to sitting late and you are not, you are able to split responsibilities accordingly.
It’s a good idea to test if your partner has some prior knowledge in conducting a new business venture. This will tell you the way they performed in their past endeavors.
4. Have an Attorney Vet the Partnership Documents
Ensure that you take legal opinion before signing any partnership agreements. It’s necessary to have a fantastic comprehension of each policy, as a badly written arrangement can make you run into liability problems.
You should be sure to add or delete any relevant clause before entering into a partnership. This is as it is awkward to create alterations after the agreement has been signed.
5. The Partnership Should Be Solely Based On Business Terms
Business partnerships should not be based on personal connections or tastes. There ought to be strong accountability measures put in place from the very first day to track performance. Responsibilities must be clearly defined and performing metrics must indicate every person’s contribution towards the business.
Having a poor accountability and performance measurement system is just one of the reasons why many ventures fail. As opposed to placing in their efforts, owners start blaming each other for the wrong decisions and leading in company losses.
6. The Commitment Level of Your Business Partner
All partnerships start on friendly terms and with great enthusiasm. But some people today lose excitement along the way due to everyday slog. Consequently, you have to understand the commitment level of your partner before entering into a business partnership together.
Your business associate (s) should be able to demonstrate exactly the same amount of commitment at each phase of the business. When they don’t stay committed to the company, it is going to reflect in their work and could be detrimental to the company too. The very best approach to maintain the commitment amount of each business partner would be to set desired expectations from each person from the very first day.
While entering into a partnership arrangement, you need to have some idea about your spouse’s added responsibilities. Responsibilities like caring for an elderly parent ought to be given due consideration to set realistic expectations. This gives room for empathy and flexibility on your work ethics.
Just like any other contract, a business venture requires a prenup. This could outline what happens in case a partner wishes to exit the company. A Few of the questions to answer in such a scenario include:
How will the exiting party receive compensation?
How will the division of funds occur among the rest of the business partners?
Also, how will you divide the responsibilities?
Even if there’s a 50-50 partnership, somebody has to be in charge of daily operations. Areas such as CEO and Director have to be allocated to appropriate people such as the company partners from the start.
This helps in establishing an organizational structure and additional defining the roles and responsibilities of each stakeholder. When each individual knows what’s expected of him or her, then they are more likely to work better in their role.
9. You Share the Same Values and Vision
You’re able to make important business decisions fast and define longterm strategies. But occasionally, even the most like-minded people can disagree on important decisions. In such cases, it is essential to keep in mind the long-term goals of the business.
Business ventures are a excellent way to share liabilities and increase funding when establishing a new business. To earn a business partnership effective, it is important to find a partner that can allow you to earn fruitful decisions for the business. Thus, pay attention to the above-mentioned integral facets, as a feeble partner(s) can prove detrimental for your venture.