You have a great business idea as you excitedly tell your best friend about the idea. Your friend gives his own advice concerning the small business, offering insights that will help you to get operations running and how to find financing. In fact, you are so impressed by his ideas that you wonder whether you should have him as part of the small business.
Deciding on a partnership: consider all the angles
Business partnerships can work for businesses of all sizes as there can be great rewards. When a person needs funding, they can turn to a partner without trying to jump through the flaming hoops to get small business financing. A partner may have the skills needed for your business to grow, as they may be great at managing employees, handling the accounting and invoicing, dealing with customers, or coming up with new ideas.
Yet there are also some common pitfalls associated with a partnership. Arguments about who will be the overall boss, how to manage employees, how much of a percentage each partner will get, and what are the financial goals of the small business can cause significant rifts that affect operations. If you are a cash business, who has the responsibility for handling the cash and what happens when the books don’t balance. In time, these conflicts can lead to a partner leaving the business or causing a negative impact on operations. It may also lead to the business closing its doors for good or having the partners sell the business to an acquiring company.
Questions to ask yourself about a business partnership
To decide if a partnership is the most viable route to start your small business, you need to sit down and ask yourself several important questions about what advantages the partner will bring into the arrangement. Three important questions to focus on:
- What is the person bringing into the business? Understanding how the other person fits into the the business scheme can allow you to decide whether they would make an ideal partner. Sometimes, it may just be better to hire the person on as an employee.
- Who will be the leader? Everyone wants to have a hand in how the business will be operated. Yet when it comes down to differing opinions, there needs to be someone in charge who will have the final word on the matter. You have to decide who the leader is and, if the leader is the other person, whether you can accept their decisions without continued conflict.
- How much of a commitment can each person bring to the business? Lots of partnerships fail because one person doesn’t seem to put in as much effort into the business as the other. This circumstance can cause resentment and anger that each person isn’t putting in their fair share of time and work into it.
Many of the issues with a partnership can be eliminated with proper business planning. Deciding on the rules for the business, each person’s role, and working out the contingencies can lower the amount of disputes that can happen. Having a partnership can lead to business success so long as each person outlines their expectations, brings the most optimal skills into the business, and allows for open communication with all parties involved in the operations.
There is no doubt that starting out in business can be a daunting experience and we can’t stress how important it is to decide what legal structure your business should take. Check out our company structure guide, it will give what you need to know about structuring your company, plain and simple.