Getting into a business venture has its benefits. It allows all contributors to share the stakes in the business. Limited partners are only there to give financing to the business. They’ve no say in business operations, neither do they share the responsibility of any debt or other business duties. General Partners function the business and share its liabilities too. Since limited liability partnerships call for a great deal of paperwork, people tend to form general partnerships in companies.
Things to Consider Before Establishing A Business Partnership
Business ventures are a great way to share your profit and loss with someone who you can trust. But a poorly implemented partnerships can turn out to be a disaster for the business. Here are some useful methods to protect your interests while forming a new business venture:
1. Becoming Sure Of Why You Want a Partner
Before entering into a business partnership with a person, you have to ask yourself why you need a partner. If you’re seeking just an investor, then a limited liability partnership should suffice. But if you’re trying to make a tax shield for your business, the general partnership would be a better choice.
Business partners should match each other concerning expertise and techniques. If you’re a technology enthusiast, then teaming up with an expert with extensive marketing expertise can be very beneficial.
2. Knowing Your Partner’s Current Financial Situation
Before asking someone to commit to your business, you have to understand their financial situation. When starting up a business, there might be some amount of initial capital required. If business partners have enough financial resources, they won’t need funds from other resources. This will lower a company’s debt and boost the owner’s equity.
3. Background Check
Even if you expect someone to become your business partner, there’s not any harm in doing a background check. Asking two or three personal and professional references can give you a reasonable idea about their work ethics. Background checks help you avoid any potential surprises when you start working with your business partner. If your business partner is accustomed to sitting late and you aren’t, you can split responsibilities accordingly.
It’s a good idea to check if your partner has some previous knowledge in conducting a new business venture. This will explain to you how they completed in their past endeavors.
Make sure you take legal opinion before signing any venture agreements. It’s among the most useful approaches to secure your rights and interests in a business venture. It’s important to get a fantastic comprehension of each policy, as a poorly written agreement can make you encounter accountability problems.
You need to be certain to add or delete any appropriate clause before entering into a venture. This is as it is awkward to make alterations once the agreement has been signed.
5. The Partnership Must Be Solely Based On Business Terms
Business partnerships should not be based on personal relationships or tastes. There should be strong accountability measures set in place from the very first day to monitor performance. Responsibilities should be clearly defined and performing metrics should indicate every person’s contribution towards the business.
Possessing a poor accountability and performance measurement process is just one reason why many ventures fail. As opposed to placing in their efforts, owners start blaming each other for the wrong choices and resulting in company losses.
6. The Commitment Amount of Your Business Partner
All partnerships start on friendly terms and with great enthusiasm. But some people today eliminate excitement along the way as a result of everyday slog. Therefore, you have to understand the commitment level of your partner before entering into a business partnership together.
Your business partner(s) need to be able to show the same amount of commitment at each stage of the business. If they don’t stay committed to the business, it is going to reflect in their work and can be detrimental to the business too. The very best way to keep up the commitment amount of each business partner would be to set desired expectations from each person from the very first day.
While entering into a partnership agreement, you need to get some idea about your partner’s added responsibilities. Responsibilities like taking care of an elderly parent should be given due consideration to set realistic expectations. This provides room for empathy and flexibility in your work ethics.
7. What’s Going to Happen If a Partner Exits the Business Enterprise
This would outline what happens in case a partner wants to exit the business.
How will the exiting party receive compensation?
How will the branch of funds take place one of the rest of the business partners?
Also, how are you going to divide the responsibilities?
Even when there’s a 50-50 venture, someone needs to be in charge of daily operations. Areas such as CEO and Director have to be allocated to appropriate individuals including the business partners from the beginning.
This helps in establishing an organizational structure and additional defining the functions and responsibilities of each stakeholder. When each person knows what’s expected of him or her, then they are more likely to perform better in their role.
9. You Share the Same Values and Vision
Entering into a business venture with someone who shares the very same values and vision makes the running of daily operations considerably simple. You can make important business decisions fast and define long-term strategies. But occasionally, even the most like-minded individuals can disagree on important decisions. In these scenarios, it is vital to keep in mind the long-term goals of the business.
Business ventures are a great way to discuss obligations and boost financing when setting up a new small business. To make a company venture successful, it is crucial to get a partner that can help you make fruitful choices for the business. Thus, look closely at the above-mentioned integral aspects, as a weak partner(s) can prove detrimental for your venture.