4 Things to Consider Before Partnering in Business
When Christina and Amanda decided to start an interior design business together, they couldn't have been more excited. They opened their doors with a little planning and a handful of ground rules and responsibilities. Now, three years into their partnership they find themselves clashing over multiple things, such as differing work ethics, unclear financial goals, roles in the business and management styles.
They have found themselves at a crossroad of whether to dissolve the business or figure out a plan to sustain their business partnership and friendship.
Here are four key things to consider:
Do you need a business partner? Taking on a business partner should be reserved for when a partnership is beneficial to the success of the company. For example, if the potential partner has networks, financial resources, or dynamic skillsets you lack.
Sometimes, instead of partnering, you could hire the person as an employee or freelance contractor.
Communication: is important in all stages of the partnership, and especially so at the beginning. You must be able to connect to feel comfortable expressing your opinions, ideas, and expectations.
Test the Waters: If you haven't worked together previously, try tackling a small project together that highlights each other's skills and requires cooperation. This project is also an excellent way to learn about each other's personality and core values.
To guess how well you might work together, set up a meeting with their current or former colleagues and family members. Key questions to answer are:
Do you and your potential business partner share the similar personal and professional goals and philosophies?
Do you trust each other?
Additionally, prospective partners may want to discuss their expectations for the business and partnership.
Partnership Agreement: Once the decision is made to start a business together, form a partnership agreement with assistance from a trusted lawyer and accountant. A written agreement ought to address three crucial areas: compensation, roles and responsibilities and a clause in the event of an exit from the business.
The Bottom Line: Friends as business partners can be a great asset or a horrible liability. Make sure to weigh the advantages and disadvantages of having a business partner, and wisely evaluate whether it's a risk worth taking and if you can live with the possible consequences.
I want to hear from you! What have you learned from seeing friends or relatives run businesses together?
Lozelle Mathai, MBA, CFEI is an accountant and Founder of Closing Your Books, LLC. She educates women small business owner on how to manage, maintain and understand their business finances before and after they hire a bookkeeper or accountant. Her desire is for business owners to hire based on value and not just on price.