Entering into a business partnership can boost your potential for success. The joining of complimentary skills sets, capital and ideas can make all the difference in getting a business or project off the ground.
However, a business partnership is not that different to a marriage. Both involve often-conflicting egos and objectives. Both are entered into with well-meaning hope, often to be overcome by financial stresses and mounting differences in priorities and outlook.
As with marriage there is no magic formula for making a business partnership work. But, from our experience in dealing with clients in partnership structures, we can recommend some critical steps to building a partnership that will go the distance.
Do You Really Need a Business Partner?
Before entering into a partnership arrangement look carefully at what each partner is expected to bring to the business. It is never a good idea to partner with someone simply because you can’t afford to hire them. Find outside funding and work out an independent contractor arrangement. You will both be happier in the end.
Be Clear About Goals
You may be crystal clear about what you want out of the business, but don’t enter a partnership without also being clear about your partner’s aims and ambitions. Don’t enter a business partnership until you are certain that your primary goals are aligned and both parties are confident that the business can meet their individual aspirations.
Test the Partnership
If you have never worked with a potential partner before then consider testing the partnership by working on a project together before jumping in boots and all. If you find that your personalities and core values conflict or your potential partner’s skills are not at the level you expected, then reconsider partnership.
A Written Partnership Agreement
Don’t make the mistake of thinking a Partnership Agreement is simply a bunch of legal mumbo-jumbo. This is probably the most important document you will ever sign. A good Partnership Agreement will spell out exactly how the relationship and the business is going to work – including compensation packages, roles and responsibilities and exit clauses.
The process of negotiating your Partnership Agreement is as important as the agreement itself. This is an opportunity to ensure both parties are clear about plans and expectations and will avoid anger, unmet expectations and frustration down the track.
Be sure you involve a lawyer with experience in writing Partnership Agreements and also include your accountant.
Carefully Consider Your Exit Clause
The exit clause will most certainly be part of your Partnership Agreement, but it is worth reiterating that planning for the possibility of you or your partner leaving the partnership is critical to the long-term viability of your business. Read and reread this clause before signing. Whether you or your partner choose to leave the business, assure yourself that the outcome is fair and equitable. You just never know when this clause is going to be executed.
Revisit Your Partnership Agreement Regularly
Businesses and people change. A Partnership Agreement drafted when a business was just getting started may not be appropriate once that business has become an established, mature entity. We recommend that partners review their agreement as part of their annual business planning process and make modifications as you go. Otherwise you may be in for a rude shock when an out of date exit clause is executed.
Communicate, Communicate, Communicate
Real estate may be all about “location, location, location”, but business partnerships rely on “communication, communication, communication.” Make sure from the outset of your partnership that you have formal systems in place to keep channels of communication wide open. This may be daily meetings or weekend retreats – but don’t rely on regularly shouting across the office at each other or you may find yourselves out of touch once you start to grow.
Remember to respect your partner’s opinions and ideas. It’s OK to disagree, this can lead to “creative friction”. But both partners must feel comfortable and safe expressing their opinions, ideas and expectations.
If you are considering entering into a partnership then feel free to give us a call to discuss your partnership structure and processes. We are here to help our clients succeed!