The increasing number of small business owners often choose a sole proprietor business structure when starting up. However, there are a few others who are beginning to embraced partnerships, as business partnerships with individual(s) who are complementary both personally and professional have proven to result in greater rewards.
Partnerships offer more freedom for business owners with shared business tasks and the potential to earn greater profits. At the same time, a partnership business can can be a relationship disaster or a positive experience.
Before you form a business partnership, consider the following:
- Have the Same Vision
For a partnership to be successful, all parties involved must agree on the same strategic direction for the company. If one partner wants to build a national chain of retail outlets and the other would just like to earn a decent living, the business will fail in no time. Set a clear agreed course for the business that meets the needs of both partners.
- Define Business Roles
A winning business partnership capitalizes on the strengths and skills of each partner. Divide business roles according to each individuals strengths. One partner may be strong in marketing, operations and finance, the other sales, human resources and leadership.
- Avoid the 50-50 Split
It may seem logical and fair to split the share of ownership into an equal 50%. However, this ownership structure can impair decision making in the future. Instead of having decisions stalemated, consider a 49% to 51% split. If this is not possible, an outside board for bigger issue disagreements can help your company from being deadlocked on decisions.
- Hold a Monthly Partner Meeting
A strong business partnership is built on an open communicating relationship. Meet on a monthly basis to share grievances, review roles and provide constructive criticism.
- Create a Partnership Agreement
It is simple to set up a partnership because no legal documents are needed. Partnerships are often an oral agreement between two or more parties. Potential problems can be averted down the road by drawing up a legal partnership agreement.
Contents of a Business Partnership Agreement
What should be covered in a good business partnership agreement? The agreement should include the following:
- Amount of equity invested by each partner.
- Type of business.
- How profits and loss will be shared.
- Partners pay and compensation.
- Distribution of assets on dissolution.
- Provisions for changes or dissolving the partnership.
- Dispute settlement clause.
- Settlement in case of death or incapacitation.
- Restrictions of authority and expenditures.
- Length of partnership
Building a small business can be more rewarding and profitable in a partnership environment. Consider a business partnership structure where you have someone to complement your skill set and add value to your company. Partnerships can work when the right foundation is laid in the beginning.
