Starting a new business can feel daunting, especially if you’ve never launched a startup before. To ease some of the discomfort, many professionals choose to go into business with a partner, figuring that two heads are better than one. While it certainly can feel comforting to have someone to help with those early decisions, a partnership is not the right choice for every business.
Before you decide to start a business with a partner, it’s important to know what to expect. Here’s what you should do before diving into a partnership:
If you’re thinking about a business partnership, take a step back and examine the other options. If it’s a boost of confidence you need, for example, instead of taking on a business partner to help you with decisions, consider paying a consultant to advise you on an as-needed basis. That way, rather than giving up half of your business to someone else, you’ll be able to get the information you need during various periods of transition for a short-term fee.
If you have a longtime mentor or some other person you trust implicitly, consider tapping them to be an advisor board member of your company. If you don’t know anyone like that, you may be able to find such an expert on Fiverr . You can also use the extensive Fiverr network to find people who can help you with work that may not be your particular zone of expertise, whether it be graphic design or legal documentation.
Choose the Right Partner.
You may be inclined to form your new business with a friend, but personal relationships can sometimes cloud your objectivity. Your choice of partner should be based primarily on shared goals and work styles. Before you commit, learn as much as possible about your potential partner, including discussing the finite details of what you each want out of your business. It may help if you’ve actually worked together before, since you’ll already know plenty about each other’s professional approaches.
Assess Your Respective Strengths.
Many of the best business partners complement each other. One partner may be weaker when it comes to negotiation skills while another may prefer to be out hunting for sales or interacting with people rather than sitting behind a desk. Choose a partner who excels in the areas where you may be lacking and you’ll likely have a more successful partnership. By opting for someone with complementary strengths, you may also be less likely to find yourself battling to take the spotlight in pitch meetings or presentations.
It may surprise you , but you might only have a general idea of what your strengths and weaknesses are. If you don’t have much experience in identifying these attributes, the process may feel unnatural. Asking yourself these questions may help:
- What are my core values? This can reveal what’s truly important to you, which can show why you prefer or excel at certain aspects of your business.
- What do you enjoy doing? Think back to a time you were perfectly happy with the work you were doing. This will reveal something that may be a strength.
- What do people I respect think? Do an informal survey of people you respect about what they see as your strengths and weaknesses. Former professors, supervisors, and certain family and friends are good candidates for this.
Even if you already know the person you’ll be partnering with well, force yourself to stick to the same processes you would go through when hiring a new employee. Ask for business references and contact them, putting particular focus on your potential partner’s work style and ethics. Don’t rule out the benefit of getting personal references, either. You may find that this information is the most valuable when it comes to a person’s character (even though friends and family members will probably only have positive things to say).
For personal reference checks, it’s especially important to ask questions that will generate the information you need. Here are a few questions to ask:
- How do you know the person? It’s important to establish, upfront, any bias the reference might have regarding your potential partner. A parent or sibling might not give the same honest answers as a former colleague, for instance.
- Is the person trustworthy? An honest answer isn’t guaranteed, but you’ll likely get insight into the person’s character from this question. You’ll often find that the reference answers your questions by providing concrete instances of your potential partner’s trustworthiness.
- How well does the person work with others? You’ll likely learn a great deal about how your potential partner relates to others from this question. Friends and family members will often have a history of witnessing the person’s interaction with others and will be able to provide insights that former employers can’t.
Put It in Writing.
Once you’ve settled on working with a partner, it’s essential that you document everything in writing, including how things will be handled if one partner decides to leave the company. If possible, have an attorney draft the document up. At the very least, a legal professional should review any agreements and sign off on them before you proceed. This document should also detail your business’s structure and how disputes will be settled. Taking this small step at the beginning could save you significant headaches if an issue arises down the line. Here are a few items you should include in a business partnership contract:
- Percentage of ownership: The agreement should outline how the partnership is divided, whether it’s a 50-50 split or one holds a greater share than the other. This is often driven by the amount of cash each person is putting in to get the business started.
- Bookkeeping requirements: How will the books be maintained? Will there be a third party responsible for reviewing them periodically?
- Property list: The agreement should list every piece of tangible property being brought into the partnership and which partner has ownership of that item before commissioning it for business use. This includes computer equipment, mobile devices, and vehicles.
- Dispute resolution: This is perhaps one of the most important items in any written partnership agreement. Designate an arbitrator who will step in and make a decision in the event you can’t come to a compromise on an issue.
- Exit strategy: In the event that one partner wants out of the agreement, how will the company’s assets be divided? What terms will need to be present for one partner to buy out the other partner’s share?
A partner can offset some of the stress of starting a new business, but there are negatives to shared leadership. Every entrepreneur should take time to learn as much as possible about potential partners and do plenty of work beforehand to avoid legal issues later on. But when handled carefully, the right partner can save you money and help you build a strong business.
How did you decide to work with—or not work with—a business partner? Tell us in the comments below.