Posted On March 29, 2022
It is said that two heads are better than one and that is often 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 lives, 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 should 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 bind.
Before you begin 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 startup 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 borrowed money within five years and your credit is good, talk to your accountant and banker and discover a loan 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 to raise money. Calculate the optimal amount of capital investment required and ask your accountant or business attorney to estimate the amount of property you are likely to have to relinquish to your investment partner. If you can’t seem to afford to hold at least 51%, then consider taking on two partners and giving yourself a majority stake. Never split 50 – 50, to avoid deadlocking on important decisions.
In my business plan writing workshop, I emphasize that you have to know yourself when you’re in business. Objectively think about how much presence of others in your business you can tolerate. Your personality type may lead you to seek out a silent or limited partner arrangement, a partner who primarily wants to make money and believes in your ability to run the business smartly.
However, you may conclude 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 to see 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. Be sure to also 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 agreement. Also check the financial history of the prospective partner. Don’t form a partnership with someone who has a lot of 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 divorce, illness or death of a partner. Make sure you don’t end up in the business with a former spouse, the surviving spouse, or the couple’s children.
Thank you for reading,