So you’re considering bringing on a partner. Choosing a business partner is a big decision. Here are 4 steps to take before you take on a partner.
1. Think long-term.
People have come to me wanting to bring on a partner to jump-start company growth. It’s true that the right partner can bring in fresh ideas and revitalize a company. But it is a lot of pressure to put on an incoming partner. People don’t always get the instantaneous results they want. It’s important to evaluate the long-term effect of bringing on a partner, rather than being dazzled with the idea of an influx of new energy.
2. Look at personality.
You’ve invested a lot more time and effort into building the business. Getting ready to share control can be difficult. It’s crucial to find the right person. The wrong person hurts not only the business, but also you. Try to get to know potential partners in both personal and business spheres. If you’re going to bring on a partner, find someone who complements you, rather than someone who is very similar to you. One of the benefits of having a business partner is the additional time you’ll have to spend on your areas of strength.
3. Have a good partnership agreement.
This is crucial. Oftentimes, if business owners bring on a family member as a partner, they spend less time and effort on crafting a partnership agreement. However, a clear partnership agreement is just as crucial in a family business. A good partnership agreement includes a break-down of responsibilities and duties. It also includes section that describes contributions of cash or property needed, and who will contribute that. It includes percentages of ownership. It outlines salaries and profit distributions. Finally, a good partnership agreement includes a buyout clause in case of retirement, illness, or disagreement.
4. Start with a trial period.
Set up a trial period of 2-6 months. This temporary arrangement will enable you to see how you work together and whether or not a real partnership is feasible. Set up the terms of the plan in advance, and spend some time working together.
This posting is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this posting should not be acted upon without specific professional guidance. Please call us if you have questions.