A partnership is a relationship between two or more persons who join to carry on a trade or business, with each person contributing money, property, labor or skill, and each expecting to share in the profits and losses of the business.
Blending the talents, perspectives, and expectation of multiple parties into a single vision can be difficult, and it takes special care to avoid pitfalls.
Partnerships, like any other arrangement, have their pros and cons. The key is to evaluate your needs, know what the issues are and can be, and take informed steps to alleviate them.
Some possible pros of partnerships:
*Shared cost of start-up or expansion
*Shared responsibilities and work
*Shared business risks and expenses
*Complementary skills and additional contacts of each partner can lead to the achievement of greater results together than apart
*Mutual support and motivation
Some possible cons to consider:
*Partners in a general partnership are jointly and individually liable for the business activities of the other. If you partner bails, you are left with all the debts, not just your half.
*Shared profits, even if the contribution of each is not balanced
*Lack of total control. Decisions are shared, and differences of opinions can be huge obstacles.
*Friendships may not survive
A friendship founded on business is a good deal better than a business founded on friendship.” --John D. Rockefeller
Brad Sugars, author of Instant Cashflow, outlined the following partnership killers to avoid:
*Sharing capital instead of expenses: Work out an arrangement where expenses are shared in an ‘associative’ arrangement. It also makes it easier to walk away if things go wrong.
*Partnering with someone because you can’t afford to hire: Don’t give away what you don’t have to.
*Lacking a written and signed partnership agreement: I can’t stress this one enough. Know in advance what is expected of each partner. Work with a good attorney to get this right. Without a written agreement you are taking greater risks that you may realize. Put simply: do not enter into a partnership with someone who avoids putting everything in writing!
*Overlooking a limited partnership: In this arrangement, the limited partner is not liable for the actions or obligations of the general partner. Again, an experienced attorney is a must.
*Lacking an out or exit strategy: This helps define the terms of separation, should it become necessary, or can provide options to buy out the other partner.
*Expecting the friendship to outlast the breakup of the partnership: In the business world, it’s always business first and friendships second. Don’t think otherwise.
*Having a 50/50 partnership: The buck has to stop somewhere, and someone has to be the boss.
If you are in a partnership, or considering one as your legal/tax structure of choice, do your homework. Take stock of what you need in a partner. Don’t overlook the potential partner’s financial situation. What are they already committed to? What expectations do they have of the partnership? If they are looking for a quick return, they may not be a good fit. Are they prepared to make the commitment? How is their reputation?
Talk with a good attorney, and make the investment in time for discussion and preparing the paperwork. Make sure your partnership avoids the pitfalls.
Warren Williams is president and founder of TurningPoint Business Coaching. He provides coaching to growing businesses in Concord and the Greater Charlotte area. Have a question about this article, or a topic you’d like to see covered here? Contact Warren at email@example.com or visit www.TurningPointBizCoach.com.