A: Sure, if you do it right.
by Ken Sethney, Kitsap SCORE
Are two heads always better than one? When it comes to taking on a partner to start or grow a small business, there’s no right or wrong answer. Partners can complement each other’s management skills and bring benefits such as special expertise and client relationships.
As with any relationship, there are trade-offs that must be carefully considered before deciding whether adding a partner is a wise move, and then you have to find the right person for the role.
If it sounds a bit like marriage, you’re not far off. Having the right partner can be a terrific advantage for a business. Making the partnership successful takes as much energy, effort, and positive feelings for one another as it does to make a marriage work.
There are several important things to consider before choosing a partner and entering into a business partnership.
Define your objectives. From the beginning, the partners need to be certain they share the same personal and financial goals and have comparable expectations for what the partnership will accomplish.
Define your roles. Each partner’s roles and responsibilities should supplement and enhance other’s, but not overlap. In other words, don’t get in each other’s way. Respect each other’s skills and abilities, but do your own job.
Share financial obligations and rewards. Be clear with each other about your financial obligations and how the rewards (i.e., the profit and owners’ equity) from the partnership will be shared.
Sign a written partnership agreement. This is absolutely essential. Every partnership should be based on a well-written partnership agreement, prepared by an attorney with a great deal of experience in business law. It will be worth every dollar you spend to have it prepared.
Share decision-making. Partners need to agree on all major decisions affecting the business, particularly those involving large investments of capital, changes in strategic focus, key management hires, and more. Decide in advance how you will make these decisions and know you will benefit by having more than one perspective.
Understand that unhappiness happens. Any relationship between two people is bound to produce a bit of friction and sometimes anger. More often than not, they are caused by miscommunication or misunderstanding. The sooner they are brought out in the open and discussed, the less likely they will lead to a major “blow-up.”
Provide an “escape hatch.” Every good partnership agreement contains a “buy/sell” provision in case the partnership doesn’t work out, or one of the partners needs to withdraw from the business for any reason.
When there are disagreements, knowing the consequences of not reaching an agreement is often all it takes to help partners find a reasonable compromise.
My first business was a 4-way partnership that included an Angel investor. Before the investor wrote his check, and the four of us got down to business, we hired an experienced business attorney to write our partnership agreement. He asked a lot of questions and we talked among ourselves until we had the answers.
We agreed on our roles, our financial obligations and potential rewards. When the time came to dissolve the partnership, everything we had to do was right there in the agreement.
Don’t rely on incomplete information to plan for the success of your small business. Set up an appointment with a SCORE Mentor and/or go to the SCORE’s website for business templates and tools and online workshops.
SCORE is a nonprofit organization of more than 12,000 volunteers who provide free, confidential business mentoring and training workshops to small business owners.
For more help with decision about taking on a business partner, contact SCORE — Mentors to America’s Small Business. SCORE is a nonprofit organization with more than 12,000 volunteers who provide free, confidential business mentoring and training workshops to small business owners. To contact Kitsap SCORE, email email@example.com, call 360-328-1380 or visit kitsapscore.org.
Ken Sethney is a volunteer business mentor and branch manager with Kitsap SCORE. He is a former ad agency creative director and marketing coach who worked with the owners of midsize companies throughout the U.S. Contact Ken via email at firstname.lastname@example.org.
This article first appeared in the Kitsap Peninsula Business Journal here.
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