How to Go Into Business with a Partner
A successful business partnership is not only short-term but also long-term with similar vision, finances, expectations, and goals.3 min read
Are you wondering how to go into business with a partner? A successful business partnership is not only short-term but also long-term with similar vision, finances, expectations, and goals. The best business partnership has to do with give and take. Even if the differences seem small in the beginning, with time these can turn into major problems.
What to Know Before Starting a Business Partnership
- What are your motivations? When you start a business with someone, it's important to know why you are doing so instead of going at it alone. If you know the reasons for working with someone, you can be clear in how to move in the right direction in the future.
- Why are you thinking of a business partnership? The fear of doing business on your own is not enough reason to consider a business partner; a partnership should align with your long-term business goals.
- What can this business partner add to the business that you can't alone? A business partnership can be strong if both parties understand each brings his/her own talents to the table. If you are considering going into business with a friend or family member, consider how the talents compliment each other objectively.
- What is your vision for the business? Do you want to build a small business or a start-up and what do you expect the revenue and business size to be? Envision your business in 5, 7, and 10 years time and see if it matches your partners.
- Know your relationship - It's important to understand what kind of relationship you have with your business partner in order to easily make decisions, resolve conflicts, and manage daily business matters.
- Know your finances and viewpoints - This kind of relationship is a business one, so make sure to talk clearly about finances from the beginning with your business partner.
- How does each of you manage expenses? You and your partner can set limitations to spending and create a budget for the business. There will be times when you have to discuss with each other before buying something, and other times when you can buy without discussing.
- Know an exit strategy - Business partnerships aren't set in stone. Some last months, years, or decades, but eventually there will come a time when each will go their separate ways. An exit strategy in place will make it much easier to know what to do when it's time to separate.
What Are the Partnership Killers to Avoid?
- Sharing capital instead of expenses - When you share resources like money, property or information you give away your enterprise skills. You can't trust that your business partner will not take your skills and use them in another venture without you. Make sure to work an arrangement where expenses are shared in an associative agreement.
- Partnering with someone to save money - If you have an idea and another person has the skill, you are better off hiring that person as an employee, as a partnership can bring more problems than you need in terms of obligations.
- No signed agreement - A business partnership has to be clearly written and agreed upon by all parties in a written document. It's best to hire a well-versed lawyer in business partnerships.
- Not considering a limited partnership - If you go into a partnership assuming liability, you are asking for a potential downfall. By considering a limited partnership, where the limited partner has no liability with the actions of the other.
- No exit strategy - In a business partnership, define an exit strategy for you and your partner to walk away from the business, or the option to buy out the other one.
- Expecting that the friendship lasts longer than the partnership - In a business, business comes first and then the friendship, and most of the time when a business ends so does the friendship.
- 50/50 partnership - Every business needs a boss; therefore, a 70/30 or 60/40 split makes more sense. The business will have someone who will be the point of operational control. Make sure to have an exit strategy that benefits you and saves you problems in the future.
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