Getting into a business venture has its benefits. It permits all contributors to split the bets in the business. Depending upon the risk appetites of partners, a business can have a general or limited liability partnership. Limited partners are only there to provide funding to the business. They’ve no say in business operations, neither do they share the duty of any debt or other business obligations. General Partners operate the business and share its liabilities too. Since limited liability partnerships require a lot of paperwork, people usually tend to form general partnerships in businesses.
Things to Think about Before Establishing A Business Partnership
Business ventures are a excellent way to talk about your profit and loss with someone who you can trust. But a badly implemented partnerships can prove to be a tragedy for the business.
1. Becoming Sure Of Why You Need a Partner
Before entering into a business partnership with a person, you have to ask yourself why you want a partner. If you are seeking only an investor, then a limited liability partnership should suffice. But if you are trying to make a tax shield to your enterprise, the general partnership would be a better choice.
Business partners should complement each other in terms of experience and skills. If you are a tech enthusiast, teaming up with an expert with extensive marketing experience can be very beneficial.
2. Understanding Your Partner’s Current Financial Situation
Before asking someone to dedicate to your business, you have to understand their financial situation. When starting up a business, there may be some amount of initial capital needed. If business partners have enough financial resources, they won’t require funding from other resources. This will lower a company’s debt and boost the operator’s equity.
3. Background Check
Even in case you trust someone to be your business partner, there is no harm in performing a background check. Asking a couple of personal and professional references can provide you a reasonable idea about their work integrity. Background checks help you avoid any future surprises when you start working with your business partner. If your business partner is accustomed to sitting and you aren’t, you are able to split responsibilities accordingly.
It is a great idea to check if your spouse has some previous knowledge in running a new business venture. This will explain to you the way they completed in their previous jobs.
4. Have an Attorney Vet the Partnership Records
Make sure that you take legal opinion prior to signing any venture agreements. It is necessary to have a good understanding of each policy, as a badly written arrangement can force you to run into accountability problems.
You should make sure that you add or delete any appropriate clause prior to entering into a venture. This is as it’s cumbersome to make amendments once the agreement has been signed.
5. The Partnership Must Be Solely Based On Company Provisions
Business partnerships should not be based on personal connections or tastes. There should be strong accountability measures put in place in the very first day to track performance. Responsibilities should be clearly defined and executing metrics should indicate every individual’s contribution to the business.
Possessing a poor accountability and performance measurement system is just one reason why many ventures fail. Rather than putting in their efforts, owners start blaming each other for the wrong decisions and resulting in business losses.
6. The Commitment Level of Your Company Partner
All partnerships start on friendly terms and with good enthusiasm. But some people today lose excitement along the way due to regular slog. Therefore, you have to understand the dedication level of your spouse before entering into a business partnership with them.
Your business partner(s) should be able to demonstrate the exact same amount of dedication at every phase of the business. When they don’t stay dedicated to the business, it will reflect in their job and can be injurious to the business too. The best approach to maintain the commitment amount of each business partner is to establish desired expectations from every person from the very first day.
While entering into a partnership arrangement, you need to have an idea about your spouse’s added responsibilities. Responsibilities such as caring for an elderly parent should be given due thought to establish realistic expectations. This gives room for empathy and flexibility in your job ethics.
7. What’s Going to Happen If a Partner Exits the Business
This would outline what happens in case a spouse wants to exit the business. A Few of the questions to answer in this scenario include:
How will the departing party receive reimbursement?
How will the division of funds occur among the rest of the business partners?
Also, how will you divide the responsibilities?
8. Who Will Be In Charge Of Daily Operations
Areas such as CEO and Director have to be allocated to suitable individuals including the business partners from the start.
When each individual knows what’s expected of him or her, then they are more likely to perform better in their own role.
9. You Share the Very 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 much easy. You’re able to make important business decisions fast and define longterm plans. But sometimes, even the very like-minded individuals can disagree on important decisions. In these cases, it’s essential to keep in mind the long-term goals of the enterprise.
Business ventures are a excellent way to discuss obligations and boost funding when establishing a new small business. To make a company venture effective, it’s crucial to get a partner that can help you make profitable decisions for the business. Thus, look closely at the above-mentioned integral aspects, as a weak spouse (s) can prove detrimental for your new venture.