Author: Score
Are two heads always better than one? When it comes to taking on a partner to start or grow a small business, there’s no right or wrong answer. Partners can complement each other’s management skills and bring benefits such as special expertise and client relationships. As with any relationship, there are trade-offs that must be carefully considered before deciding whether adding a partner is a wise move and then finding the right person for that role.
If that sounds like marriage, you’re not far off. “Having a good partner can be a terrific advantage for a business,” says SCORE counselor Alan Shaver, a former general counsel of a fast food franchisor and a franchisee of a national auto services company. Making the partnership successful, he adds, “takes as much energy, effort, and positive feelings for one another as it does to make a marriage work.”
Shaver offers several key factors to consider before choosing a partner and entering into a partnership.
- Clearly defined objectives. From the beginning, the partners need to be certain they share the same personal and financial goals and have comparable expectations for what the partnership will accomplish.
- Clearly defined roles. The partners’ respective roles and responsibilities should supplement and enhance each other, but not overlap. “In other words, don’t get in one another’s way,” Shaver advises. “Respect each other’s skills and abilities, but do your own job.”
- Shared financial obligations and rewards. Be clear with one another about individual financial obligations and how the rewards (i.e., the profit) from the partnership will be shared.
- Shared decision-making. Partners need to agree on all major decisions affecting the business, particularly those involving large investments of capital, strategy changes, key management hires, etc.
- Unhappiness happens. Any relationship between two people is bound to produce areas of friction and sometimes anger. “More often than not, they are caused by miscommunication or misunderstanding,” Shaver says. “The sooner they are brought out in the open and discussed, the less likely they will lead to a major ‘blow-up.’”
- Provide an “escape hatch.” Every good partnership agreement contains a “buy/sell” provision should the partnership not work out, or if a partner needs to withdraw from the business. “When there are disagreements, knowing the consequences of not reaching an agreement is often all it takes to help partners reach a compromise,” Shaver says.
- A written partnership agreement is essential. Every partnership should be based upon a well-written partnership agreement, prepared by an attorney with experience in this field. Shaver recalls how such an agreement helped foster his successful 18-year partnership in an auto service franchise. “We seldom looked at the partnership agreement, although we both knew what it contained,” he recalls. “It provided an important framework for our relationship and helped us through all the rough spots. It will be worth every dollar spent to have it prepared.”
