Small business partnerships can be harmonious, mutually beneficial relationships that help propel your business forward. However, they can also become complicated and contentious if you and your partner aren’t on the same page.
To avoid a bad dynamic, it’s crucial to do your homework before signing a contract. Here are six things to know before you enter a small business partnership:
1. It’s helpful to have different skills than your partner
An ideal business partner is someone who can complement your strengths and compensate for your shortcomings. That’s why choosing a partner with different skills than you is key, said Michael Alexis, the CEO of Team Building, a company that offers virtual team building activities to businesses.
“My business partner has a strong mind toward the creative and operational aspects of the business, whereas my strengths are marketing, sales, and growth,” he said.
Having different talents and areas of expertise doesn’t just improve your company’s growth potential, it can also prevent conflict or competition between you and your partner. After all, when you’re working on different areas of the business, you won’t be stepping on one another’s toes.
2. Your communication styles need to align
Clear, open communication is the key to a healthy, long-lasting business partnership. Before you go into business with someone, make sure you discuss your communication style and preferences.
That includes talking about how you make decisions, how you approach conflict, and when and how often you’d like to check in with one another, said Michelle Diamond, the CEO and founder of Elevate Diamond Strategy, a firm that advises businesses on their growth strategy and development.
Some people like to touch base multiple times a day, while others prefer a weekly catch-up call. Agreeing on a communication strategy early on can help prevent confusion and conflict down the road. “Direct communication is key. If someone is blindsided, emotions get involved,” Diamond said.
3. Contracts are essential
Having a good rapport with your business partner only gets you so far. To prevent problems, it’s critical to draw up a contract that spells out your roles, responsibilities, and profit sharing plan.
“You have to be very upfront with who is going to do what,” Diamond said. “Sometimes you can’t account for every single thing that’s going to occur, but you should still discuss important matters to the extent that you can.”
Consider the following questions:
- How will you split profits?
- What will your respective salaries look like?
- What are your business deal-breakers?
- What will your equity strategy be?
- Can you bring on additional partners?
- What is your process for making big company decisions?
- What is each partner’s role and day-to-day duties?
- What will happen if the partnership dissolves?
- What will happen if one partner dies or decides to leave the business?
4. It’s important to have the same goals for the business
If you and your partner don’t share the same long-term vision for the company, you risk dealing with mounting stress and discord as your company grows.
“You can’t be successful if you’re not on the same page,” said Diamond.
Alexis agreed, and said it’s helpful to consider why you and your partner want to own a business together. “It’s a red flag for me if someone wants image or wealth out of a business,” he said. “I want to work with someone who has a similar passion for the mission.”
In addition to discussing your values and interests, make sure you have an open conversation about your goals for the company, monetary and otherwise.
5. Business acumen isn’t the most important factor
When you’re searching for a business partner, it’s important to look beyond someone’s resume.
“You have to consider emotional intelligence and personality in addition to business acumen,” Diamond said.
How well your partner can solve problems, execute ideas, and handle conflict has a huge effect on your business’s success.
“When times are good, a business is relatively easy to manage,” Alexis said. “However, when margins are thin or the business goes into the negative is when an entrepreneur’s ability to handle adversity really shows.”
Partnering with someone who’s resilient, positive, and hard-working in the face of hardship can help you navigate crises and slow periods with ease, Alexis said.
6. Trust your gut
It’s a good idea to gather as much information as possible when preparing for a business partnership, but ultimately, your best source of intel is your own intuition. “You have to listen to your gut,” said Diamond.
If you don’t feel 100% right about a business partnership at the beginning, it may not be wise to move forward, she said.
You want to choose a business partner just as carefully as you’d choose a romantic partner, Alexis said. “This could be someone you spend the rest of your life working with, so don’t go into it loosely.”
This post was originally published on 6 Things to Know Before Entering a Small Business Partnership on Fundbox.- Fundbox – Fundbox Forward