Successfully forming a business partnership in three steps
Have you ever thought of Forming a Business Partnership with Someone?
You’re not alone. A huge number of people are considering forming a business partnership daily, for all sorts of reasons, including a newly improved business structure and a more efficient operation.
Sometimes a couple of colleagues decide they can do a better job than their employer, so make a pact to team up and run a business partnership together.
Often, friends will have what seems like a brilliant idea and, after talking it through over a few drinks and scribbling some plans on the back of beer mat, chuck in their day jobs to make a fresh start.
Now and again, two people will spot a gap in the market and decide to fill it by pooling their occupational skills and cash together.
But whatever your reason, forming a business partnership is always going to be a leap in the dark. The trick to getting it right is predicting how you will land – because it could either be on a feather mattress or on a concrete floor.
In many years of seeing business partnerships being formed, I’ve discovered there are three essential steps to getting them right. Let me share them with you.
Step 1: Make sure the partnership is equal
I can’t over stress this enough. Before you even think about forming a business arrangement with someone, make sure you are going to put in equal shares of time, money and skills.
If one person invests more capital, there’s every chance they’ll demand a greater profit share and insist on doing less of the work. That causes resentment. For the same reasons, make sure you both bring skills of the same value to the organisation, or one of you will end up subsidising the other.
So keep it equitable. And whatever else you do, make sure you’re both in good health. If you team up with someone who is more likely to face health problems, it’s you who will end up carrying the can. Don’t risk it.
Step 2: Double check everything
You’ve both agreed you’re bringing the same amount of money, skills and dedication to your new business partnership.
Congratulations! Now go back to step one and review every conclusion you made. You’re perilously close to committing yourself to an alliance, and it’s essential you get it right.
Step 3: When forming a business partnership you’re not going to like this, but…
… DON’T DO IT!
Just don’t. It’s almost certainly going to backfire on you – partnerships usually do. Tell your putative business partner to go it alone if they want to. Hire help if you have to. Don’t give away equity at any point because, if your business idea is a good one, it’s going to be worth good money later.
And if you’re worried about striking out without a business partner, remember that you don’t need the comfy feeling of a friend to be brave in your new business. If it’s your vision, your work and your risk, you’ll put all the more into it, have a better chance of succeeding and won’t risk the prospect of an acrimonious split further down the line or a messy business exit.
And believe me I’ve seen enough of them. I remember one business where a partner put in equal money but did pretty much all of the work. The lazier partner had to be bought off for a six-figure sum – essentially for doing nothing.
If that happens to you, you’ll basically be giving money away for nothing – cash you could use in your business.
So, before signing on the dotted line, take a pause. Give us a call now and talk to a colleague with experience in advising business start-ups. It could make the difference between making a success of your business idea or seeing it shatter to pieces!
About Kirsty Demeza
With a portfolio that ranges from startups to companies with a £10 million turnover, Kirsty’s talent for working closely with her clients ensures her services remain in strong demand.
“The most rewarding part of my role is seeing clients succeed,” she says. “When you help a new business and watch it expand into new premises and secure big contracts, it’s a great feeling.” Kirsty never finds two days are the same.
As well as providing accounting services that range from self-assessment tax planning and VAT to audit and accounts, she’s part of THP’s sales team and closely involved in helping our trainees to develop their skills.