Getting into a business partnership has its benefits. It allows all contributors to split the stakes in the business enterprise. Limited partners are just there to provide financing to the business enterprise. 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 obligations too. Since limited liability partnerships call for a lot of paperwork, people tend to form general partnerships in businesses.
Things to Think about Before Setting Up A Business Partnership
Business ventures are a great way to talk about your profit and loss with somebody who you can trust. However, a badly implemented partnerships can prove to be a disaster for the business enterprise. Here are some useful methods to protect your interests while forming a new business partnership:
1. Becoming Sure Of Why You Want a Partner
Before entering a business partnership with a person, you need to ask yourself why you want a partner. If you’re seeking only an investor, then a limited liability partnership should suffice. However, if you’re working to create a tax shield for your business, the general partnership would be a better choice.
Business partners should complement each other in terms of experience and techniques. If you’re a tech enthusiast, teaming up with an expert with extensive advertising experience can be quite beneficial.
2. Knowing Your Partner’s Current Financial Situation
Before asking someone to commit to your organization, you need to understand their financial situation. When establishing a business, there may be some amount of initial capital needed. If business partners have sufficient financial resources, they will not need funding from other resources. This may lower a company’s debt and boost the operator’s equity.
3. Background Check
Even in case you expect someone to become your business partner, there’s no harm in performing a background check. Asking a couple of professional and personal references may provide you a reasonable idea about their work ethics. Background checks help you avoid any future surprises when you start working with your organization partner. If your business partner is used to sitting late and you are not, you can divide responsibilities accordingly.
It’s a great idea to check if your spouse has some prior knowledge in running a new business enterprise. This will tell you the way they completed in their previous endeavors.
Ensure you take legal opinion before signing any partnership agreements. It’s important to get a good understanding of each clause, as a badly written agreement can force you to encounter accountability issues.
You should make certain to delete or add any appropriate clause before entering into a partnership. This is as it is awkward to create amendments once the agreement was signed.
5. The Partnership Should Be Solely Based On Business Terms
Business partnerships should not be based on personal connections or tastes. There should be strong accountability measures set in place from the very first day to monitor performance. Responsibilities should be clearly defined and performing metrics should indicate every person’s contribution towards the business enterprise.
Possessing a weak accountability and performance measurement system is one of the reasons why many ventures fail. As opposed to putting in their attempts, 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 good enthusiasm. However, some people today lose excitement along the way due to regular slog. Therefore, you need to understand the commitment level of your spouse before entering into a business partnership with them.
Your business partner(s) should be able to show exactly the same amount of commitment at each stage of the business enterprise. If they don’t remain dedicated to the business, it is going to reflect in their work and can be detrimental to the business too. The best approach to keep up 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 agreement, you will need to get some idea about your spouse’s added responsibilities. Responsibilities like taking care of an elderly parent should be given due thought to set realistic expectations. This provides room for empathy and flexibility on your work ethics.
7. What Will Happen If a Partner Exits the Business
Just like any other contract, a business enterprise takes a prenup. This would outline what happens if a spouse wishes to exit the business.
How will the exiting party receive compensation?
How will the branch of resources take place one of the rest of the business partners?
Moreover, how are you going to divide the duties?
8. Who Will Be In Charge Of Daily Operations
Even when there’s a 50-50 partnership, somebody needs to be in charge of daily operations. Areas such as CEO and Director need to be allocated to suitable individuals such as the business partners from the start.
This assists in establishing an organizational structure and further defining the roles and responsibilities of each stakeholder. When each person knows what’s expected of him or her, they are more likely to perform better in their own role.
9. You Share the Very Same Values and Vision
Entering into a business partnership with somebody who shares the same values and vision makes the running of daily operations much easy. You’re able to make significant business decisions quickly and establish longterm strategies. However, sometimes, even the very like-minded individuals can disagree on significant decisions. In such cases, it is essential to remember the long-term goals of the business.
Business ventures are a great way to discuss obligations and boost financing when setting up a new business. To earn a company venture successful, it is crucial to find a partner that can help you earn fruitful decisions for the business enterprise.