However, there are also some issues that could come up and derail a partnership before it ever has a chance to become successful. For example, if you cannot work well together, if you lack an essential skill or resource as a team, or if you simply envision two different paths to success, your business will likely ultimately fail. This can be costly if not devastating as a business owner. Before you get into a situation where you put your business and partnership at risk, it’s wise to ask a few questions up front – before any contracts are signed or agreements are made.
Is your vision for the company the same?
Sit down and talk with your potential partner so you can ascertain what vision each of you has for the company and if those visions are compatible. Remember, a vision drives all the decisions you make as you run your business. If two partners have competing visions and making decisions accordingly, the results can and likely will be disaster.
The best way to be prepared is to draft a shared vision together and put it in writing. If this simple task cannot be accomplished by the two of you, then there is no way the partnership can hope to succeed.
What sort of strengths and weaknesses do you have as a team?
It’s a clear advantage of partnerships when you can supplement one another’s skill set. If your partner is a sales wiz and you understand how to maximize production output and minimize cost, the partnership should be a fit. But you’ll never know this until you sit down and discuss both your strengths and weaknesses as a team in order to assess your potential. If it comes down to it, you may be missing an essential skill set that a different partner would provide. Finding this out up front before there is any money on the line is the best way to handle this possible issue.
How will conflicts be handled?
In a partnership, there is no authority figure – both parties share such authority equally. This means there is no clear cut way to respond when there is a disagreement. Sitting down and discussing how to handle disagreements before there ever is one is a great way to get a glimpse into how conflict resolution will work when things go live.
Better yet, when you come up with a plan – put it in writing so that there is no misunderstanding or assumption. When you sit down to have that conversation, make sure you get to know a bit about your partner’s character and how they handle resolution. Explain how you’ve handled tough spots in the past and ask your potential partner questions about how they’ve handled conflict. Be thorough to protect your investment. The time to find out there is a problem is upfront, before anything has been signed.
How much time will each partner be investing into the company?
It’s just the truth that different people will have different amounts of time to invest in their business. This, however, does not have to be a problem. If you can sit down and discuss openly with your potential business partner how much time each of you has to commit, realistic expectations can be set beforehand. While this may not seem important, it is essential to eliminate any friction that can arise when a business goes live and one partner spends a lot more time working than the other.
A good way to handle this is to, as always, put time investment expectations into writing. If they are greatly disproportionate, perhaps a discussion of ownership equity should be brought up just as it would if one partner was bringing a lot more capital to invest.
What size of financial investment will each partner be making?
One common reason for partnering in business is that one partner has more capital to invest while the other partner has expertise or time they intend to invest. Both of these have business equity and should be represented in ownership share. This must be discussed up front, however. In traditional partnerships, equity is determined by capital investment, so making any different arrangements must be done up front and of course put into writing to prevent misunderstandings or other disagreements on down the line.
Are you both willing to put it in writing?
As has been made clear – one of the best things that can result of asking these questions is to clarify possible areas of disagreement or conflict and put them into writing. This is, in fact, what should be done for the entire partnership. The agreement as a whole should be put into writing. No section should be left out and all important information should be explicitly detailed in order to prevent future disagreements.
Be sure to include the following in your agreement:
· The full legal name of the partnership as well as all partners involved in the agreement.
· The contributions in terms of capital, time, or expertise each partner intends to make.
· A layout of management expectations and guidelines
· Plans on how to resolve disputes
· Plans for how to introduce a new partner in the future
· Plans on what to do in the event of the death of one of the partners
· A clearly defined list of each partner’s responsibilities, authority, and decision-making power
· A clear layout of how profits, losses, and draws are to be allocated between partners
· Your exit strategy
What is your exit strategy?
The best laid business plans may not be enough to overcome the unforeseen. Therefore, always leave yourself an exit strategy. A simple discussion about how to proceed if one partner wants to leave the partnership should happen up front. Decide if one should buy the other out, or if they should sell to a third party. Talking about what each partner would prefer in this situation and how you will proceed before signing an agreement is an essential step in protecting your partnership.
As always, make sure to put your strategy into writing and include it in your partnership agreement.
To sum it up…
These questions all get a few basic things you as a potential business owner and partner should realize to give your business its best chance at succeeding:
· Talk about how things could go wrong before they do and decide upon a plan of action to implement when they do.
· Put everything in writing in the partnership agreement.
· Leave yourself an exit strategy to make sure that if the business goes south, it won’t take your career with it.
Still have questions?
Call us at 305-548-5020 for free a consultation.