Getting into a business partnership has its own benefits. It allows all contributors to share the bets in the business. Depending on the risk appetites of partners, a business can have a general or limited liability partnership. Limited partners are only there to provide financing to the business. They have no say in business operations, neither do they discuss the duty of any debt or other business obligations. General Partners function the business and discuss its liabilities as well. Since limited liability partnerships require a great deal of paperwork, people usually tend to form overall partnerships in companies.
Facts to Think about Before Establishing A Business Partnership
Business partnerships are a great way to share your profit and loss with someone who you can trust. However, a poorly executed partnerships can turn out to be a tragedy for the business. Here are some useful ways to protect your interests while forming a new business partnership:
1. Being Sure Of Why You Need a Partner
Before entering a business partnership with someone, you need to ask yourself why you want a partner. If you are looking for only an investor, then a limited liability partnership should suffice. However, if you are working to create a tax shield for your enterprise, the overall partnership could be a better choice.
Business partners should match each other concerning experience and skills. If you are a tech enthusiast, teaming up with a professional with extensive marketing experience can be quite beneficial.
Before asking someone to commit to your organization, you need to understand their financial situation. When starting up a business, there may be some amount of initial capital required. If business partners have sufficient financial resources, they will not need funding from other resources. This may lower a firm’s debt and boost the owner’s equity.
3. Background Check
Even in case you trust someone to become your business partner, there is not any harm in performing a background check. Calling two or three personal and professional references can give you a reasonable idea in their work integrity. Background checks help you avoid any potential surprises when you begin working with your organization partner. If your business partner is accustomed to sitting late and you aren’t, you are able to divide responsibilities accordingly.
It is a good idea to check if your partner has any prior knowledge in conducting a new business enterprise. This will explain to you the way they performed in their previous jobs.
Make sure you take legal opinion prior to signing any partnership agreements. It is important to have a good comprehension of each policy, as a poorly written agreement can make you run into liability issues.
You should make certain to add or delete any relevant clause prior to entering into a partnership. This is as it is cumbersome to make amendments after the agreement has been signed.
5. The Partnership Should Be Solely Based On Business Terms
Business partnerships shouldn’t be based on personal relationships or preferences. There should be strong accountability measures put in place from the very first day to track performance. Responsibilities should be clearly defined and performing metrics should indicate every individual’s contribution to the business.
Having a weak accountability and performance measurement process is just one reason why many partnerships fail. As opposed to putting in their attempts, owners begin blaming each other for the wrong choices and resulting in company losses.
6. The Commitment Amount of Your Business Partner
All partnerships begin on favorable terms and with good enthusiasm. However, some people lose excitement along the way due to everyday slog. Consequently, you need to understand the dedication level of your partner before entering into a business partnership together.
Your business partner(s) should have the ability to show exactly the same level of dedication at every phase of the business. If they do not stay dedicated to the business, it will reflect in their job and can be detrimental to the business as well. The best way to keep up the commitment level of each business partner is to establish desired expectations from every person from the very first moment.
While entering into a partnership agreement, you need to have an idea about your partner’s added responsibilities. Responsibilities like taking care of an elderly parent should be given due thought to establish realistic expectations. This provides room for compassion and flexibility on your job ethics.
7. What’s Going to Happen If a Partner Exits the Business
The same as any other contract, a business enterprise takes a prenup. This could outline what happens in case a partner wants to exit the business.
How will the exiting party receive compensation?
How will the branch of resources occur among the rest of the business partners?
Moreover, how will you divide the duties?
Even when there is a 50-50 partnership, someone needs to be in charge of daily operations. Positions including CEO and Director need to be allocated to suitable individuals including the business 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, they’re more likely to work better in their role.
9. You Share the Very Same Values and Vision
Entering into a business partnership with someone who shares the very same values and vision makes the running of daily operations much easy. You can make significant business decisions quickly and establish longterm strategies. However, sometimes, even the very like-minded individuals can disagree on significant decisions. In these scenarios, it is essential to remember the long-term aims of the enterprise.
Business partnerships are a great way to discuss obligations and boost financing when setting up a new small business. To make a business partnership successful, it is crucial to find a partner that will allow you to make fruitful choices for the business. Thus, look closely at the above-mentioned integral facets, as a feeble partner(s) can prove detrimental for your new venture.