9 Things to Consider Before Forming a Business Partnership
Getting into a business venture has its own benefits. It allows all contributors to split the bets in the business enterprise. Depending on the risk appetites of partners, a business may have a general or limited liability partnership. Limited partners are only there to give funding to the business enterprise. They have no say in business operations, neither do they discuss the responsibility of any debt or other business obligations. General Partners operate the business and discuss its liabilities too. Since limited liability partnerships require a lot of paperwork, people usually tend to form general partnerships in businesses.
Things to Consider Before Setting Up A Business Partnership
Business partnerships are a great way to talk about your profit and loss with someone who you can trust. But a badly executed partnerships can turn out to be a tragedy for the business enterprise. Here are some useful methods to protect your interests while forming a new business venture:
1. Being Sure Of You Need a Partner
Before entering a business partnership with someone, you need to ask yourself why you want a partner. If you are seeking only an investor, then a limited liability partnership ought to suffice. But if you are working to create a tax shield to your enterprise, the general partnership would be a better choice.
Business partners should match each other concerning expertise and techniques. If you are a technology enthusiast, teaming up with a professional with extensive marketing expertise can be quite beneficial.
2. Understanding Your Partner’s Current Financial Situation
Before asking someone to dedicate to your business, you need to comprehend their financial situation. When starting up a business, there may be some amount of initial capital required. If business partners have sufficient financial resources, they won’t need funds from other resources. This will lower a company’s debt and boost the owner’s equity.
3. Background Check
Even if you expect someone to be your business partner, there is no harm in doing a background check. Asking two or three professional and personal references may give you a fair idea about their work ethics. Background checks help you avoid any future surprises when you begin working with your business partner. If your business partner is used to sitting and you are not, you can split responsibilities accordingly.
It’s a good idea to check if your spouse has any previous experience in conducting a new business enterprise. This will tell you how they performed in their past jobs.
4. Have an Attorney Vet the Partnership Records
Ensure that you take legal opinion prior to signing any venture agreements. It’s one of the most useful approaches to secure your rights and interests in a business venture. It’s important to have a fantastic comprehension of each clause, as a badly written agreement can force you to encounter liability issues.
You need to be sure to delete or add any appropriate clause prior to entering into a venture. This is as it is cumbersome to make alterations after the agreement was signed.
5. The Partnership Must Be Solely Based On Business Provisions
Business partnerships shouldn’t be based on personal relationships or preferences. There ought to be strong accountability measures set in place in the very first day to track performance. Responsibilities must be clearly defined and executing metrics must indicate every person’s contribution towards the business enterprise.
Having a poor accountability and performance measurement system is just one reason why many partnerships fail. As opposed to putting in their attempts, owners begin blaming each other for the wrong decisions and resulting in business losses.
6. The Commitment Level of Your Business Partner
All partnerships begin on favorable terms and with great enthusiasm. But some people today lose excitement along the way due to everyday slog. Consequently, you need to comprehend the dedication level of your spouse before entering into a business partnership together.
Your business partner(s) need to have the ability to show the same amount of dedication at each stage of the business enterprise. When they do not remain dedicated to the business, it will reflect in their job and could be detrimental to the business too. The very best way to maintain the commitment amount of each business partner would be to establish desired expectations from each person from the very first day.
While entering into a partnership agreement, you need to have some idea about your partner’s added responsibilities. Responsibilities like caring for an elderly parent ought to be given due consideration to establish realistic expectations. This gives room for empathy and flexibility on your job ethics.
7. What’s Going to Happen If a Partner Exits the Business
This would outline what happens if a spouse wants to exit the business. Some of the questions to answer in this situation include:
How does the departing party receive compensation?
How does the division of resources occur one of the remaining business partners?
Also, how will you divide the duties?
Even if there is a 50-50 venture, someone needs to be in charge of daily operations. Areas such as CEO and Director need to be allocated to suitable people including the business partners from the beginning.
When each person knows what’s expected of him or her, they’re more likely to perform better in their own role.
9. You Share the Same Values and Vision
You can make important business decisions fast and define longterm strategies. But sometimes, even the most like-minded people can disagree on important decisions. In such cases, it is vital to keep in mind the long-term goals of the enterprise.
Business partnerships are a great way to discuss obligations and boost funding when setting up a new small business. To make a business partnership successful, it is important to find a partner that will allow you to make fruitful decisions for the business enterprise. Thus, pay attention to the above-mentioned integral aspects, as a feeble spouse (s) can prove detrimental for your new venture.