In theory, a business partnership sounds like a great idea – half the workload, another pair of hands, half your risk etc. In my experience, however, a partner of any kind (and I include active investors in this category) can be a very difficult beast to manage. There are, of course many potential benefits in having a business partner. They may bring many things to the party – money, expertise, a valuable customer list, an established business framework i.e. a sales team, HR, payroll, accountability, support etc. They may also bring things that you hadn’t anticipated – stress, meddling, liabilities, management overhead, personal issues and soon.
So is agreeing to a partnership the right decision?
As with all things in life, nothing is ever black or white. If you are considering a partnership ask yourself the following questions and answer honestly:
1. What do both parties bring to the table and is it an equitable agreement? That is to say, is it a fair exchange? There is nothing more likely to bring a partnership down quickly if one party feels that they have contributed more than they have received.
2. Do you actually need a partner? Could you simply take your business idea, hire in the skills and go it alone?
3. Are you both willing to have a legally drawn-up partnership agreement that details the duties and obligations of each party? If the answer is no then ask yourself why not? It may be that you feel that you can trust this person implicitly and that may be so but there are many external factors that can change this. For example, what if your partner gets divorced and his wife claims half of his assets – where would that leave you? What if he is involved in another business enterprise that suddenly requires funding that was originally earmarked for your business – where would that leave you? I could go on but I think you get the idea.
4. If your potential Partner is a friend are you prepared to lose the friendship if the business idea doesn’t work?
5. What split of equity is appropriate and how will you decide? Would a tightly controlled profit share agreement be more appropriate enabling you to maintain 100% control of the shareholding? Whatever you decide think carefully before agreeing to a 50-50 share split – deadlock between partners is not a healthy place for any business to find itself in.
6. What happens if the proposition is not successful? What liabilities will there be and who will be responsible for them?
7. What happens if after a period of time, one party wishes to exit the partnership? Make sure that you can clearly define a solution that will enable one party to walk away or be bought out without bringing about the downfall of what is by now a successful enterprise.
There are many other questions that you could ask. What I believe that I am advocating here is that you go into a partnership with your eyes wide open. It is common for people to be seduced by all the potential benefits of a partnership without even considering any of the risks involved. Just don’t be one of them.