Are you thinking about a business partnership? Joining forces with someone else to start a business or take it to the next level could be a dream come true — or a nightmare. We discuss some of the important things you need to consider.
Business partnerships are a lot like marriage
I always ask, would you want to wake up every day and speak to the person who might become your business partner? Would you be happy to have dinner with them every single day and talk about your business? Because that’s effectively what you need to do. It’s a relationship so you need to actually like them, and be able to communicate effectively in good times and bad. Trust is really important. So is being open and honest.
Ask yourself why
Why are you contemplating a partnership? If the business is up and running, is it because you want to expand, or step back a bit? Are you thinking about selling? Is there a succession plan for one of your children to take over? A clear understanding of why you might want to go into business with someone else helps set the direction for all other decisions. Think about it this way: going into business in the first place isn’t something you take lightly. It’s a big life decision and the same goes for taking on a business partner. Your livelihood, lifestyle and peace of mind are all at stake!
Partnerships can have benefits
They can be a good way to bring someone else into your business. It’s much cheaper than setting up a trust or a company. There are different liabilities for companies too. Your partnership agreement is probably the most expensive thing to set up (see below). Down the track, you can incorporate a trust or a company in order to expand.
“People think this is easy, we’re best mates”
The most important thing
Never go into business with someone else without a partnership agreement. You set this up your accountant and lawyer. I’ve seen it when people think ‘this is easy, we’re best mates’. Then someone decides they want more family time or goes on holidays for two weeks longer than someone else. Or someone wants to renovate and take money out of the business but it’s all tied up. You might disagree on a capital expense. It’s amazing how these relationships can break down. I’ve had mates do a successful partnership then they both got married and things changed. Right at the start, you put everything on paper. Hearsay won’t help if things get difficult.
Who makes the decisions?
People bring different roles, skills and strengths and it can be hard to put a value on that. Someone might bring a premises or client base to the partnership. A silent partner might put up cash but have no other input. Is one person going to be a managing partner? Who signs off on expenses and to what amount? This will be decided in the partnership agreement.
Partnerships can be very successful
I haven’t seen too many fail, to be honest. If they do it’s usually when people aren’t open and honest about what they want from the start. A partnership can be hard to sell, though. If the business grows beyond expectations and you want to sell, you will have to change your structure. Overall, my advice is to put your own peace of mind first and foremost as you decide if a partnership is right for you. If you need any help deciding if a partnership is right for you contact us.
Article contributed by DFK Crosbie in Newcastle.