Setting up a business partnership is far simpler than finding the right person to go into business with. Your business partner should have experience and success in your area of activity. Having knowledge and expertise in an area that’s new to you is of paramount importance.
Your partner should be not only able to bring comprehension of the core activities of the business and how it should work but also be reliable and trustworthy.
If you have experience in your industry of choice, look for someone with skills in marketing, business development, sales, and other complementary areas. Your partner should help grow the business while you turn your attention to operations.
Here are a few crucial factors to take into account before going into business with someone.
Do due diligence
A potential partner who talks impressively, but can’t prove a track record of success in the area, is a major red flag. It’s important to conduct due diligence, which includes confirming any claims of having run a successful business in the past. Ideally, you would look at their financial statements and check if there have ever been any lawsuits against them. You could even conduct a credit check if you team up with a background check provider.
Most of the information you need about them should be easy to find, with so many ways to look people up online today.
Take their financial status into account
If you have personal assets like a real estate property, a vehicle, a deposit, etc., you should consider more than just operational and startup costs. If your business racks up debt, your personal assets could be at risk depending on your business partnership’s structure. Consider their financial status and don’t ask questions about it.
If you’re going into a business where one of you has far more assets than the other, this person will bear greater risk. This might affect the business relationship.
Establish risk exposure and a business structure
The risk level each partner faces will be determined by your business structure and partnership agreement. Each structure provides a different level of protection, liability, and responsibility. Your account can advise you on asset protection and business structures.
Partnership agreement
Depending on your specific needs, you can choose to do one or more of the following:
· Have a lawyer draft a general partnership agreement between the two of you
· Set up a trust or a company to protect each one’s personal assets
· Choose an informal partnership where each one of you operates independently. You have your own business structure, but you can refer customers to one another
It’s also important to define each other’s roles in the business. You need to discuss and agree on the following:
· The assets, time, and effort each partner will contribute
· How to divide profits and losses
· How involved will each partner be in daily business operations
· How disputes in the partnership will be resolved
· How to terminate or resign from the partnership if one of you decides to go their way
· How to evaluate and buy out if this becomes necessary down the line
You should cover all these aspects in your written partnership agreement.
Assess personal qualities
Apart from looking them up, establish aspects of their character. Would they take responsibility for their actions? What is their work ethic like? How do they feel about money? Someone who is always trying to shift the blame when something goes wrong, isn’t willing to work hard, has a lot of personal debt, or is overly relaxed when it comes to money probably won’t help you develop and operate a successful business. In fact, they might even get in the way.
Summary
Going into business with someone can be a smart financial and strategic move. It can bring a startup investment, industry experience, and valuable business skills to your company. However, other factors, such as ethics, trust, personality differences, and general attitude, can play a role in the outcome.
Finding the right person to go into business with is like finding the right person to marry. You should be as well-informed as possible about the person you’re bringing in. A full background check of your potential business partner can help protect you, your business, and potentially your reputation in the marketplace.
