New Venture Lab: Equipping Christian Entrepreneurs

Are you considering a business partnership with someone outside of your family?  Any business lawyer will likely immediately speak up about the complexities and high failure rates of partnerships. 

In my experience, what usually goes sideways in business partnerships are the following:

• A change in the willingness of one partner to continue to pursue the initial goals in terms of the investment of time and/or other resources
• A change in the expectations of one partner relative to the other partner
• A change in the relationship of the partners based upon the stresses brought about by the business demands

Does that mean you should not consider a partnership?  Not at all.  Most professional services firms such as CPA firms, law firms and consulting firms are partnerships -- and partnerships can be very successful, but care must be taken to set them up properly and to manage them properly.

Here is some great advice on partnerships from a fellow blogger:

Partnerships in business can be one of the most difficult issues an entrepreneur faces. Whom the entrepreneur chooses as a partner should be given as much consideration as which products the business makes or what markets the business enters.

Dysfunctional partnerships are a major source of business failures. They suck energy and time away from building the business. They can often lead to the breakup of perfectly good businesses.  Examine potential business partnerships (this includes an "S" corporation or limited liability corporation) carefully, thoughtfully and objectively. Talk with your potential partners about everything related and even unrelated to the business.

Know their hopes and dreams, endearing personal characteristics and annoying habits, ethics and values, etc., etc.

You will most likely spend more time with your business partners than with anyone else — even your family.

Ask the right questions

Work with an attorney to create a shareholder agreement before you officially incorporate.

Business partnerships can fall apart before the first sale is ever made. Here is just a sample of some of the issues you should discuss with potential business partners:

• Do you share the same vision for the business? Do you share the same aspirations for the business in terms of its size?
• Are you all going to make the same level of commitment of time to the business? What are your work habits and work ethic? How much time off do you plan to take each day, each week, each year?
• How much money will you put into the business? And how much do you expect to get out of it?
• Who will be the president of the company? What roles will the other partners play?
• How strong is everyone's credit rating? Can all partners help to guarantee a loan, if necessary?
• What if one of you gets married and the new spouse gets a job offer in another city? Would you move away? How will employees, customers, suppliers, etc., all be treated?

If you are already in a partnership and it has problems, try to work it out openly and honestly.

This requires that you remember these two words: communication and compromise. This is not a battle of the wills -- it is your business and your livelihood on the line.

If the partnership is beyond hope of repair, get out of it as quickly as possible. The longer it takes, the more expensive it gets. And it will be expensive.

Shareholder agreements can create a potential path out of the morass, but it will still be a painful and expensive process. Count on that.

Business partnerships can be a successful experience for everyone involved. But it takes open and honest communication and careful planning throughout the life of the business to pull that off.

By: Jeff Cornwall

Source: The Entrepreneurial Mind