Starting a new business can be an exciting time, laden with opportunity and risk. For many small business owners, starting (or expanding) a business with a partner can offer significant advantages, from the ability to raise additional capital to new and complementary business skills. However business partnerships can pose their challenges, so it’s important to understand the factors entrepreneurs should consider when evaluating a potential partner.
Ideally, a business partner brings a host of resources, skills and talents to your enterprise that enhance your venture’s chances of success. However, it’s important to acknowledge that adding partners to your venture can add complexity that may be challenging. That’s why it’s essential to clarify expectations, roles, and contributions, ideally contractually.
The Small Business Administration offers a wealth of support for entrepreneurs in navigating business partnerships.
Before you even think of pulling the trigger with a business partner, contemplate whether you even need one at all. If you decide it is a good idea, make sure you get the best match to your values, goals, leadership style and skills. Because once you become partners, it is vastly more difficult to undo the partnership than it is to create it.
The following are eight points to pick the right business partner.
1. Trust.
This is first on the list for a reason. Bottom line, do you trust this individual with your personal bank account? If the answer is “no,” think twice. As partners, every dollar you spend proportionately affects your chequebook.
2. Friendship.
If the person is a good friend, make sure that their goals, values and responsibilities are aligned with yours. Don’t assume just because you get along as friends that they are. Take a look at their personal life and how stable it is. Personal problems are difficult and can easily complicate their professional life. If there is any doubt, don’t do it.
3. Trial run.
Select a person you have experience with at work, at a nonprofit or on a project. You should know if they are a team player and how they react in difficult situations. If you have no experience with a potential partner at all, do a trial run for a specified period before finalizing the partnership.
4. Partner, employee or consultant.
Don’t partner with someone just because you can’t afford to hire them. It is better to hire them as a consultant than to give away a part of your company or to find out later that he/she is not a good partner for you.
5. Varied strengths.
Make sure your and your partner’s strengths are in different areas. If you have two people who are good at sales and no one good at executing on an operational level, it will be more challenging than you think. It is much better to bring someone in who will complement your strengths. To grow profitably, keep some balance.
6. Balanced responsibilities.
Both parties need to agree upfront on what their responsibilities are in the company and stick to them. If one person keeps trying to take over and do everything or ends up doing very little, then the partnership will start to unravel and feelings of resentment will fester.
Related: How to Start a Business from Scratch
7. Money.
Just like in marriage, money is always one of the major problems in a business partnership. Therefore, agree in the beginning on how you will use the funding you raise and how the profits will be distributed.
8. Valuation/contracts.
Decide on a formula to determine the value of the company should one partner decide to leave to avoid disagreements. Buy/Sell agreements are incredibly useful for discussing all possibilities and how they will be handled before they become a reality.
Why is all of this so important? Because a great business can be severely damaged by a bad partnership and never reach its full potential. Starting a business and/or a partnership is an emotional experience. When doing your due diligence, set your emotions aside and make sure everything lines up and has the potential to stay aligned.