Wednesday, 21 September 2022

6 Things to Consider Before Forming a Business Partnership

Going into a partnership is not just about forming a business with others or friends. Those who form business partnership with such view are bound to witness business failure, scandals and litigation. Poorly structured partnerships can lead to heart ache. So how can you go into a partnership the right way?

When two or more entrepreneurs form a partnership, they pull their resources such as funds, expertise and skills thereby increase their chances of coping with their competition. There are numerous advantage of business partnership, one of its major advantage is that it can help the entrepreneurs overcome funding and skills challenges. Partnership helps young entrepreneurs on how to source for start-up capital, which is the major challenge when it comes to starting a business.

A report by experts confirmed that many young entrepreneurs fail in their attempt to turn their ideas into legitimate and thriving businesses because of a lack of capital. Those who succeed in getting a start-up loan, high interest rates often choke their business, causing it to fail. As a young entrepreneur, starting business you should do as much as possible to avoid bank loans, stressing that partnerships are better alternatives. When it is important that extra care is taken to ensure there is not an informal arrangement.

Choose a partner wisely

It is not enough that a prospective partner is your friends or family member. You have to be sure that you can work together and that you also share the same values and work ethics among other things. In choosing partners you should avoid those who have the same strengths or weaknesses that you have. The idea is to complement each other. Your ideal partner should be strong in areas where you are weak and vice versa. You also have to ensure that you share responsibility, splitting costs and sharing and sharing risks. You need to have a clear idea what each partner brings to the table, contacts, funds, experience, creativity, ideas or innovation.

If you are starting a new business in which you have a limited experience, there is nothing wrong in getting a partner who is more experienced than you are. One of you can be the brain while the other can be the muscles. What matter is both of you have a formal agreement. Do not wait until the business breaks even or when it grows into a big company.

Before you go into business partnership, you need to consider where misunderstandings and disagreements may arise in the future. In order to minimise the possibility of discord and to provide for structure in the event it occurs you should consider the following disagreements later.

The type of business you going to have

What your business structure will be? Are you going to have a general or a limited partnership? This includes not only the original idea but the potential side marketing that you could do. If the company going to be a limited, who will be the general partner(s) and what will the business form be for that person or entity? Everyone involved should have a solid understanding of the extent that they will be liable for business obligations prior to entering into any small business partnership agreement.

What will be the initial contribution from each partner

In this point you are not only considering funds but also experience. If one of the partner main contribution is not money but their expertise, this should be understood from the beginning and spelled out.

How are you both going to resolve dispute

There is no doubt that there is no going to be disagreement between the both of you but in the unfortunate event you and your partner(s) do not agree, how will the matter be decided? Who will hold the final say or is it by vote? Don’t get yourself or your business in the situation where you are unable to move forward because one partner can’t agree.

How are you going to share the profit and losses

How are you going to decide on the profit and losses on the business when the situation arises? Will it be by shares in the company or some other method? What about rolling profits back into the business to expand it, you should both consider this and how it will be determine.

What will happen if a partner becomes incapacitated or dies

You need to consider how the business will continue in the event one of the partner died or incapable. You will also consider what will happen to partner share of the business.

Provisions for making changes to the partnership or to dissolving it

There will always be a change, when this happen. How will you roll with the times? What restriction will be placed on partner authority, this includes not only making decisions on behalf of the business, but also on expenditures.

You both need to make decision on how the business assets will be distributed in the event the business no longer has capacity in the market.

Regardless of the headline-grabbing stories that disputes between partners have generated over the years, you need to bear in mind that many partnerships have been successful and are striving today. Taking these tips into consideration and doing further research you could be one of those who built empire with successful business story. Keep in mind that it is better to be the part-owner of a thriving business than for you to be a 100 per cent owner of a dying or non-performing business.

No comments:

Post a Comment