Going into a business partnership is like going into a marriage but without any of the “fringe benefits’’.
You could argue that you should know more about your future business partner than you need to know about your future spouse!
Before the partnership begins
You need to know if your partner has any skeletons in their background, as well as why they want to get into this business with you, and what their vision is for it.
You will almost certainly vet any employees you hire, so vetting your business partner is even more crucial.
If there are issues, make sure you are fully aware of them and discuss each one fully. If you and your partner cannot get on the same page over each of the issues, walk away.
Make sure you both understand all the paperwork you are signing and use different lawyers.
If any business partner is married, or they get married, ensure their spouse also signs all partnership and operating agreements. This is to protect both partners and the business in the event of a divorce.
The partnership agreement
Make sure all parties clearly understand who is responsible for what, and what each can and cannot do on behalf of the business. These duties and responsibilities need to be written down and agreed to.
Make sure that all contributions of capital are noted and updated, who receives the profits, distributions, compensation, and losses from the business, and under what circumstances might a vote on some issue occur.
Exit strategies and buy-sell agreements are prepared and fully understood. Don’t forget to utilize the various insurances developed to protect small to medium-sized businesses.
Be aware of what situations might trigger expulsion from the business, and if a partner does leave, will a non-competing provision be put in place, and how will that work.
Businesses that do operate successfully are usually set up as limited liability companies as this provides many protections for all parties concerned with the business.
Other common features of successful partnerships include accurate recording of all communications and retention of all documentation. It sounds boring, but it can be a real business saver when things might seem to be turning sour.
Ensure all tax information and bookkeeping duties are handled professionally and legally. Don’t ignore this. Too many businesses have run into problems because of a trusted employees taking 100% responsibility for all the money transactions and secretly pocketing a small fortune for themselves.
This leads to the most important factor in achieving a successful business partnership.
Do not think that the business will ever get to a point where it practically runs itself. Once you take your eye off the ball of running the business something unexpected will almost certainly crop up and you will be unprepared for it.
Checks and balances must be maintained, each partner must keep an eye on the other partners to ensure they are still pulling their weight and taking their business responsibilities seriously.
For professional advice to make sure your business will always stay on the right track, you can always talk to Corporate Business Solutions Inc. for assistance.