If you’ve ever wondered how the big corporations got big, it’s usually because somewhere along the way they entered into a partnership. Successful partnerships can help transform small businesses into multi-million dollar companies.
But apart from a partnership being a great way to grow your business, the other important benefit is the power of two minds instead of one. Bringing in a partner with the right expertise can be rewarding and profitable for your business, this is particularly true if their skill set compliments yours and adds value to the company.
When considering going into business with others, it’s important to consider what sort of relationship will suit you and your business in the long run. For instance you might choose a partner who:
- Is integral in the day-to-day management of the business
- Is only an investor and provides the necessary capital to grow your business to the next level. Although they have a vested interest, investors may or may not be involved in the management of the business
- Provides a strategic alliance or relationship that benefits the business.
The key to any of these relationships is the agreement that goes with it. What is also critical is that you develop a formal understanding around:
- The amount of equity invested by each partner or investor
- How the profits and losses will be shared
- Distribution of assets on dissolution of the business
- Dispute settlement clauses
- Settlement in case of death or incapacitation
- Restrictions of authority and expenditures
- Length of the relationship/agreement.
The ultimate goal is that you want to develop a relationship with your partner or investor that is secure and has defined terms and conditions of the relationship. If a business partner takes on a defined role from the start and there is a general agreement on the business plan, goals and visions, success should follow.
The reasons most business partnerships fail is:
- An imbalance in equality and/or financial contribution
- An imbalance in the contribution of effort by one partner
- Unfair profit distribution.
Failure can be avoided by ensuring you have a clearly defined partnership agreement from the beginning which puts in place the necessary framework for a successful partnership.
Michael Derin is founder and MD of accountancy firm Azure Group. Derin is passionate about helping small- and medium-sized businesses reach their financial and business objectives and achieve success.