So, you’ve got a bright idea for a business and you’re ready to get started. You’re buzzing with excitement and you’ve started planning everything from branding and marketing through to sales and distribution. However, when push comes to shove, it may be more difficult to get started than you expected.
While starting a new business is incredibly rewarding, there will be many unexpected pitfalls to work through along the way. If you lack some of the entrepreneurial experience needed to get going, the opportunity to go into business with a partner may be the ideal solution. Starting a business with two brains instead of one has many benefits, as the ability to grow your company alongside a partner while maximizing both of your talents and experiences is very valuable. Before entering a partnership, a strong business agreement and startup plan are necessary, along with defined success measures and risk analysis.
Below are our four tips to consider before you enter a business partnership:
Get to know your partner
If you’re considering starting a new business with a partner, make sure you get to know him or her on a personal level before you invest time and money into a project. After all, you’re going to be spending a great deal of time together, so it’s best to find out whether a working relationship is plausible.
Before you dive right in, draw up a comprehensive business plan. Where do you want your idea, product or service to go? Determining specific and measurable objectives will show how a partnership could work for your new business. Both differences and compatibilities could propel your company to success, and such an exercise will help to map out what a working relationship could look like between two partners.
Do your due diligence and make sure you both “click” before you kick off your venture, as entrepreneurs can have very different attitudes toward working hours, strategy and level of input and commitment.
Differing views on key factors such as risk and expansion may mean your business personalities are slightly too different. If you cannot align yourselves on the fundamental aspects of your business plan, then the chances are that you won’t be aligned when it comes to making big business decisions, such as hiring staff, choosing new locations for expansion and growth.
On the flip side, working with someone who has different attitudes and expertise from you can also lead to great problem solving and set your company apart from the competition. Finding the balance is key.
Related: 12 Keys to Family Business Success
Understand your partnership agreement
Once you have decided that you can work with your business partner, it’s important to sign legal documents that clearly specify your ownership stake and responsibilities in your new company. You don’t want to find yourself in an uncomfortable situation following a partnership agreement that strayed from its original plan. It’s a great idea to consult a lawyer to ensure your business is registered properly and is 100 percent legitimate before moving forward.
While the plan may be to go into business with a 50/50 partnership, things change. A legal document that confirms each partner’s responsibilities will you protect your hard work and your company in the event that something goes off plan in the future. Such a document may allow you to increase your ownership stake if your partner becomes consumed with other projects or chooses to leave the company, for example.
If seeking legal counsel is something that falls outside your financial capabilities, you can do this on your own, including terms and agreements into your business incorporation plans. If you are launching a business with one other person, then you’ll typically be able to claim 50 percent of all profits or a share of the company’s assets, should any issues arise.
If one partner plans to put in more time or initial investment into the company, that’s when waters can get murky. This is where you can also specify whether you will be involved with the day-to-day business, or a backseat investor, which may impact your salary or assets in the company. Transparency is really important at this stage in the process, so be upfront and honest about your intentions.
A key driver behind any working business relationship is that you share values and believe in your company’s vision. It’s important to understand your partner’s motivations, and that they know yours. Collaboration is key to a successful, long-term relationship. If you both know where your company wants to go and how you want to achieve that growth, the business and the relationship should naturally flourish.
Time management and workload
If you have a finance background with experience working in large multinational corporations, your ideal partner may complement you with a legal education and exposure to startups. Whatever the case may be, it’s important to leverage the assets that each partner brings to the table.
Write up an agreement and determine who does what and which responsibilities lie with whom. That may mean you oversee the accounting and leverage your commercial relationships and source funding, while your partner manages the day-to-day operations of the business and corporate compliance. Every business demands its own level of commitment, time invested and hard work.
This all comes down to trust: You need to know that your partner is credible and trustworthy and that they do what they say they’ll do. If their work is making an impact on the business, it won’t be hard to work this out. Define a success measure and track your progress against it. Keep checking in with each other to work through any roadblocks before they become major issues and inhibit growth.
Align your risk profiles
There’s no denying that starting up a business is risky. Doing so in a partnership does not change that. It’s important that you and your partner define what risks you are willing to take. Whether that be equity sold to investors, loans taken out from the bank or a set timeline to achieve returns.
Compatibility will make creating a business strategy and achieving growth that much easier to obtain. Maintaining a business is stressful, and you and your partner may find yourselves in situations where you question the viability of your idea. Prepare yourselves for these cases and define the risks you are willing to take. Hit the right balance between cautious and taking risks when necessary. Within a business partnership, its founders need to share an idea of success and identify what can be sacrificed to achieve that.
Going into a business venture with a partner has many benefits, including access to complementary capabilities and expertise, and the ability to maximize the effort put into transforming your vision into a functioning business.
However, it is not the only option you have to consider when starting a business, so do your homework and consider all of your options. While working in a partnership may be the right path for some, it can also go south quickly if you do not align your goals with your partner. Focus on your long-term business goals and find a partner who shares your vision, passion and drive to make your business a success.
Originally published Feb. 8, 2020.