Absolutely, deciding to go into business with a partner is very similar to entering a marriage. You and your partners will spend significant amounts of time together, you’ll make difficult decisions together, and your financial life will be intermingled and affected based on your decisions. Before you decide to enter a partnership, you should consider the pros and cons of doing so. In a marriage, we want everything to work out according to plan; but in case things go south some couples choose to have a prenuptial agreement drawn up. Similarly, we also want the business plan and partnership to work out. In the event unfortunate circumstances arise, partners should have a partnership agreement in place. Let’s discuss a few thought provoking questions pertaining to partnership so you can determine if it is the right structure for you.
Q- How should I consider a partnership?
A. Consider your partnership as a marriage. Go in with good habits and clear communication. Communication is crucial in ensuring solid understanding of the business’s priorities, goals, challenges, and purpose. You also want to go in with the end in mind. Make sure all issues and problems are resolved before the partners leave the partnership. When ending a business, the next steps usually include paying off liabilities from the partnership, the final distribution of profits from the partnership, filing a final tax return for the partnership and submitting other required documents to the state, as well as taxing the authorities to dissolve your partnership.
Q- What should I have in writing?
A. The bottom line is that you should always have a written partnership agreement that clearly states how the partners can come and go. This should include the question of who the partners are, who owns what and what happens if they decide to leave the partnership or enter into a new one, as well as other issues. If you have dreamed of starting a business, don't assume that it will run smoothly just because you know each other. Simply put, DOCUMENTATION BEATS CONVERSATION!
Q- What if my partner is my best friend or family member?
A- Air on the side of caution. Going into business with friends or family can be the best decision or the worst. When working with family and friends, it’s more likely that business decisions and outcomes will be taken personal. A failed business partnership with your sibling or best friend can cause collateral damage on to your personal relationship. In this particular business arrangement, you will need to produce a legal document, known as a partnership agreement, on how decisions are made and disputes resolved, and what happens if one of the partners wants to leave the business.
Q- What are some Issue?
Lack of commitment or unequal commitment from the partners. This can cause a lot of friction within a partnership. It’s important to lay out expectations and the roles of each partner.
Differing ways of approaching business. It can really difficult to function within a partnership if (1) one of is risk adverse while the other is willing to take risks, (2) both you and your partner are control-freaks, (3) one of has perseverance but the other backs down when a challenge presents itself. Things are just a few things that should be considered before entering a partnership.
Another issue is financial strain. There will be periods of time when the business is not experiencing consistent revenue, or even experiences a decline in revenue. Just like in a marriage, financial troubles can pose a huge strain to your business relationship. Business planning and transparent conversations are vital in order to prevent or address financial issues.