From finding vendors to hiring employees, preparing your taxes to stocking shelves, the tasks required to run a successful business are seemingly endless. The workload itself is one of many reasons that people decide to take on a business partner. Could working with another entrepreneur or small business be right for you? Use this guide to learn more about partnerships and whether one will meet your needs.
The Different Types of Partnership
There are four types of business partnerships, each having its own advantages and disadvantages. The most well-known type is a general partnership, which occurs when at least two parties run a business together. This is the easiest type to obtain because it doesn't require registering with the state or signing formal agreements. It also provides more flexibility in taxes. A general partnership does not provide liability protection, though, so if your partner is unscrupulous, your personal assets could be at risk.
A limited partnership is also common. This type of business practice has at least one general partner and one limited, although there can be more of each. The general partner controls the major decisions and takes personal responsibility for the business, while the limited partner typically provides financial startup or does work behind the scenes, such as creating and maintaining target operating models. This is what you may know as a silent partner.
Finally, there are two types of limited liability partnerships. Between individuals, a limited liability agreement protects each one from the others' actions and from business lawsuits, except for in cases of malpractice or personal negligence. Some states only allow people working in certain professions to form LLPs. They do not offer tax flexibility in any state.
The other type of LLP is a limited liability company partnership. A multimember LLC occurs when two or more corporations work together. It prevents them from being held responsible for another company's actions, but it does not provide tax flexibility or personal liability protection.
Why Having a Business Partner Is a Good Idea
There are plenty of good reasons to work with a business partner. Maybe you're the creative brain behind your brand, but you don't have much technical knowledge about sales and marketing. A business partner who brings greater expertise to your company, and that often translates to bigger profits.
Adding someone else to the mix also brings on another perspective. A fresh eye can help you decide if your products are bringing enough to the table and then determine whether to improve them or add additional products or services. A business partner may also have insight into marketing tactics, employee morale, and more.
Finally, a business partner provides a support system. Running a company is hard work, and having someone around who understands the ins and outs of it can make you feel much more at ease. He or she can also help take some of the load off, allowing you the downtime you need to prevent burnout.
The Downside to Partnering With Someone
If you aren't well-versed in the art of compromise, a business partner may not be for you. After all, working with someone else means giving up some of your ownership power, not to mention some of your profits. Decide what you're willing to give up and in what quantity before you rush into finding a business partner.
Making decisions also becomes more complex when you need to account for more than one opinion. When you aren't making the decisions alone, you must be sure you have a fair and ethical way of discussing major situations and implementing changes, including compromising if you and your partner don't see eye to eye on the situation.
How To Decide if You Need a Business Partner
Before you begin the search for a business partner, ask yourself if you truly need one. A strong partner must bring something to the table that you aren't already providing. Can the person or company you choose bring skills to the table that you lack? Will a business partner provide additional funding that your company needs? Will you generate enough revenue to justify splitting it with another person or business?
Most importantly, does your potential business partner share your vision? Most people start companies not simply for profit but because they have a passion for their product or service. If your business partner doesn't share the same passion or vision for the company, or if you have different views in terms of the fundamentals of running a business, the partnership isn't likely to work out. If you decide you need a partner, finding the right one is the key to success.
What To Look for in a Business Partner
Look for individuals or companies who demonstrate positive traits. Reliability should be at the top of the list. Someone who is late to meetings or has otherwise become known as unreliable will not be a good fit for your business.
The right partner should have complementary personality traits. If you are introverted or otherwise reserved, someone more extroverted can be the face of your business. On the other hand, if you have a knack for talking to people but aren't great at the stuff behind the scenes, someone who is logical and more reserved may be a good fit.
Finally, work with someone with proven integrity. Honesty and clear communication are important not only for working with you and your investors and vendors but for working with your clients or customers as well. Mistakes do happen, of course, but how your partner handles them is the key. If you notice a potential partner tends to run from responsibility or place blame on others, keep looking.
It is important to weigh the pros and cons before deciding if working with a partner is right for your business. Avoid rushing into any decisions. Some people also choose to avoid working with family members or longtime friends, as they don't want to run the risk of straining a personal relationship if the business partnership goes awry. No matter who you choose to partner with, remember to put it all in writing. Protecting you, your business, and your partner helps to ensure a long and thriving partnership.
Publish Date: April 28, 2021 3:28 AM