Entering into a partnership may seem like the ideal solution but that’s not necessarily the case. Hstl&Hrt mentor and business coach Laetitia Andrac weighs in on the pros and cons of having a business partner and shares some advice for making it work.
Two heads can be better than one – and so can two wallets. As well as energy and expertise, a partner can bring additional capital to your business, which can make it easier to scale up your operations. Your borrowing capacity will also increase and that can mean greater opportunities to expand and diversify.
“Entering a partnership is a growth opportunity – ideally, you’ll be getting the benefit of someone who challenges you and helps you progress,” Andrac says.
That’s how it played out when two of the world’s most famous partners, Apple co-founders Steve Jobs and Steve Wozniak, joined forces in 1976 with a shared dream to create user-friendly personal computers for the masses.
In contrast to a registered company, a partnership is simple to establish and has low administration costs. Regulatory requirements are minimal and changing your legal structure is easy, if circumstances change.
A business partnership is not unlike a marriage. When you sign up, you’re all in financially. Both you and your partner, or partners, are jointly and severally liable for the debts of the partnership – and that liability is unlimited.
For better or for worse, you’re also liable for their actions. That’s why choosing a partner who’ll be an asset, not a liability, to your operations is critical to your profitability and long-term viability, Andrac warns.
“Teaming up with someone who isn’t reliable and trustworthy could potentially derail your business,” she says. “In a worst-case scenario, it could cost you whatever capital you’ve invested and possibly other assets, such as your home.”
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Mismatched expectations are the most common source of conflict in business partnerships. If one partner feels they’re doing the lion’s share of the work but only receiving half the profits, discontent is certain to ensue.
“You need to be clear and transparent about who’s going to be doing what and if the division of responsibility is not equal, then that needs to be reflected in the returns,” Andrac says.
Differing values and vision for the business can also put partners at loggerheads. If one party wants to stay small and local while the other has dreams of national expansion, they’re unlikely to find a happy medium. That’s why it’s essential to ensure you’re heading in the same direction from the outset, Andrac points out.
“When you reach key milestones – say, a particular turnover or number of customers – you need to know which way you’re going to go next,” she says.
Taking on several partners simultaneously can also be fraught. Start with one – or two at most – and bed down your working relationship before bringing more parties into the arrangement, Andrac advises.
The old saying ‘marry in haste but repent at leisure’ holds equally true when it comes to business partnerships. Although it can be tempting to jump into an arrangement when you meet someone who appears to share your enthusiasm, it pays to hasten slowly.
Finding a partner whose skills and experience complement, rather than replicate, your own can help to ensure a long and happy union.
“It may take time to find the right person but it’s time you can’t afford not to take,” Andrac says. “Thinking, ‘you’re my friend and let’s do this together’ often turns out badly for both parties. It can be better to set something up by yourself and figure out what you need to scale your business before taking it to that next stage.”
Discussing a range of ‘what if’ scenarios, including illness, injury and one of the partners wanting out, documenting whatever you agree upon and seeking professional advice before you make a commitment can help keep a partnership running smoothly from start to finish. Thorough planners may even pre-nominate a mediator should they need third party help to resolve significant differences in the future.
“Set the rules in advance and it’s easier to avoid acrimony and keep everything neat and clean,” Andrac says. “People are often reluctant to talk about these things when they’re in the ‘honeymoon phase’ of going into business together but spending time thrashing everything out can prevent a lot of problems down the track.”
Going into partnership can be the best business decision you ever make – or the worst. Taking the time to assess your options and work through the issues in advance can help you determine whether joining forces with someone else is the right way forward for your business.
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