Should you have a business partner and how do you choose the right one?
It is common for people to go into business with a friend, acquaintance or a family member.
The business arrangement could be as a partnership or in a company structure.
The concept of going into business with one or more other people is a very important decision to get right as your choice can make or break your business.
What are the advantages of having a business partner?
A business partner can be a great way to help start a business and or grow an existing business.
Some benefits of having a business partner over a sole person business are:-
- Enhanced skill sets
- More partners can bring a wider skill set.
- More’ hands on deck’ – speed up the development of the business.
- Partners can provide more time resource to help run the business.
- Additional financial resources.
- Partners can contribute money to get the business growing.
- Risk sharing
- Business is about risk, and partners help to spread that risk.
- Help with decision making.
- As the saying goes “Two heads are better than one.”
- Better decisions might happen if more people contribute to the process.
The decision as to whether to have a business partner and the likely success is largely about how well aligned you are.
How do you assess if business partners are suitable for you?
We use the term “alignment” to describe how close you and someone agree on a particular view, belief or goal.
Consider your degree of alignment across many aspects, and here are several examples based upon our experience.
- How close are your visions and aspirations for the business?
- Values (honesty)
- Do you trust each other well enough and have confidence that you will work well together in all the challenges you might face.
- Work ethic and energy
- How well matched are your work ethics as demand on your effort will be high.
- Level of commitment to the short-medium and long term
- Are you able to commit for a significant period as business id a longer-term undertaking?
- Do you agree on your financial commitment and contributions to get the business growing?
- Skills (diversity)
- How well do your skills complement one another?
- Physical health and wellbeing
- Are the partners healthy enough to contribute fully for the foreseeable future?
- External responsibilities
- What other responsibilities might clash with your commitment?
- Risk tolerance
- How close is your attitude to the risk involved in your new enterprise?
- How do you both evaluate your business idea and its chances of success?
- Demeanour (introvert, extrovert, etc.)
- How will your personalities work together, and will they suit the roles needed?
Here are some tips to check your alignment with a potential business partner.
We’ll be talking about the legal ramifications of business partners in a later episode.
- Be clear about where you want to take the business
- The passage of time will expose differences in your appetite to grow the business so its good to explore this now.
- Spend time designing and commit to a plan, including the steps to get from where you are to where you’re going.
- Start with a business model design first and then do business planning.
- Work out the $ (both on the revenue side and the cost side)
- How will you share costs and profits?
- Do you have a similar attitude to money ?
- Will profits be taken out or retained in the business for growth?
- Who is going to do what?
- Decide who will perform the critical business functions needed and write some job profiles, so everyone is clear about what is expected of them.
- Design and agree a process to work through any issues that arise from the start.
- Dispute resolution is important because you will not always agree with each other. How will you resolve a dispute? Maybe this will include an external party.
- Consider a joint mentor or business coach who may be able to spot trouble before it becomes a major problem.
- Have a regular and scheduled touch base to review how the partners and partnership are going. Have an agreed agenda and charter, so you are all open to review and avoid defensive behaviour.
- Think about contingencies (what happens if someone gets sick, wants time off etc.)
- Encourage each other
- What happens if someone wants to leave the business
- It would be best if you considered Shareholder or Partnership Agreement to formalise such events as, without an agreement, disputes can become messy and very expensive.
Are family and friends good business partners?
If the partner is a family member or close friend, it’s important to protect and nurture that relationship by separating as best you can, your private and business time.
DO NOT ASSUME that family and friends will work harmoniously and resolve issues amicably.
Apply the same approach to choosing your business partners irrespective of who they are!
This is a good episode about How starting a business can affect your family.
The information contained in this podcast is general and does not take into account your situation. The content does not constitute business, legal or financial advice and should not be used as such. You should consider whether the information is appropriate to your needs, and where applicable, seek professional advice from a business adviser, financial adviser or lawyer in your jurisdiction. To find out more, please go to www.ShouldIOwnABusiness.com.