Getting to a business partnership has its own benefits. It allows all contributors to split the stakes in the business. Limited partners are only there to give financing to the business. They have no say in business operations, neither do they discuss the responsibility of any debt or other business duties. General Partners function the business and discuss its liabilities as well. Since limited liability partnerships require a lot of paperwork, people usually tend to form general partnerships in businesses.
Things to Think about Before Setting Up A Business Partnership
Business partnerships are a excellent way to talk about your gain and loss with somebody you can trust. However, a badly implemented partnerships can prove to be a tragedy for the business.
1. Becoming Sure Of You Want a Partner
Before entering into a business partnership with someone, you have to ask yourself why you want a partner. If you are looking for only an investor, then a limited liability partnership should suffice. However, if you are working to make a tax shield for your enterprise, the general partnership would be a better option.
Business partners should complement each other concerning experience and skills. If you are a technology enthusiast, teaming up with a professional with extensive marketing experience can be quite beneficial.
Before asking someone to dedicate to your business, you have to understand their financial situation. If business partners have enough financial resources, they won’t need funding from other resources. This will lower a company’s debt and boost the owner’s equity.
3. Background Check
Even if you trust someone to be your business partner, there is no harm in doing a background check. Calling two or three personal and professional references may provide you a fair idea in their work ethics. Background checks help you avoid any potential surprises when you begin working with your business partner. If your business partner is accustomed to sitting late and you aren’t, you can split responsibilities accordingly.
It’s a good idea to check if your spouse has any prior knowledge in running a new business venture. This will explain to you how they completed in their previous endeavors.
Make sure that you take legal opinion before signing any partnership agreements. It’s one of the most useful ways to protect your rights and interests in a business partnership. It’s important to get a good understanding of each clause, as a badly written arrangement can force you to run into liability problems.
You need to make sure to delete or add any appropriate clause before entering into a partnership. This is because it’s cumbersome to make amendments after the agreement was signed.
5. The Partnership Should Be Solely Based On Business Provisions
Business partnerships should not be based on personal connections or tastes. There should be strong accountability measures put in place in the very first day to track performance. Responsibilities must be clearly defined and executing metrics must indicate every person’s contribution to the business.
Having a poor accountability and performance measurement system is one of the reasons why many partnerships fail. As opposed to placing in their efforts, owners begin blaming each other for the wrong decisions and leading in business losses.
6. The Commitment Level of Your Business Partner
All partnerships begin on friendly terms and with great enthusiasm. However, some people today eliminate excitement along the way due to regular slog. Therefore, you have to understand the commitment level of your spouse before entering into a business partnership with them.
Your business associate (s) need to have the ability to demonstrate exactly the same level of commitment at every phase of the business. When they do not remain committed to the business, it will reflect in their job and can be injurious to the business as well. The very best approach to maintain the commitment level of each business partner is to set desired expectations from every individual from the very first day.
While entering into a partnership arrangement, you will need to get an idea about your spouse’s added responsibilities. Responsibilities like caring for an elderly parent should be given due thought to set realistic expectations. This gives room for compassion and flexibility in your job ethics.
The same as any other contract, a business venture takes a prenup. 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 exiting party receive reimbursement?
How does the division of funds occur among the rest of the business partners?
Moreover, how will you divide the responsibilities?
Areas such as CEO and Director have to be allocated to suitable individuals including the business partners from the beginning.
This helps in creating an organizational structure and additional defining the roles and responsibilities of each stakeholder. When each person knows what is expected of him or her, they’re more likely to work better in their role.
9. You Share the Same Values and Vision
You’re able to make important business decisions quickly and establish longterm strategies. However, occasionally, even the most like-minded individuals can disagree on important decisions. In these scenarios, it’s vital to remember the long-term goals of the enterprise.
Business partnerships are a excellent way to discuss obligations and boost financing when setting up a new business. To earn a company venture successful, it’s important to get a partner that will help you earn profitable decisions for the business. Thus, look closely at the above-mentioned integral facets, as a weak partner(s) can prove detrimental for your venture.