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BFS Capital Blog

Business Owners Need to Weigh Pros and Cons of Partnerships

June 19, 2017

Small business owners say that some of the most important reasons for running their own businesses have more to do with day-to-day reality than with money. Things like ‘freedom,’ ‘independence,’ ‘flexibility’ and ‘the ability to make and act on decisions’ show up time and time again in small-business surveys and interviews.

So what happens when partners are running a small business? Does the whole partnership concept run contrary to those deep needs for freedom and independence? How do individuals in successful business partnerships make them work?

Pros and Cons of a Partnership discussed some of the basic advantages and disadvantages of a partnership structure that were featured on the legal site On the advantage side, for example, partnerships are some of the easier business structures to establish and maintain.

But partnerships must be based on trust, and caution should still play a major role, the article stresses, in the form of a detailed, written, partnership legal agreement. One of the key reasons it is also considered a disadvantage: All members of a partnership are personally liable for business debts and liabilities.

Of course, there’s also the fact that, should you make your small business a partnership, you’ll also have to split the profits. Potential profit splits aside though, partnerships may still be the preferred business structure for you if you like the idea of always having someone there with you. This person can be a sounding board if you’re struggling, a celebration partner when something goes right, and everything in between. That makes this partnership pro a big one for the business owner who enjoys this type of comradery.


Economic Partnership Pros Tip the Scale

However, business consultant Nina Nixon feels strongly that the many advantages of an economic partnership agreement outweigh most, if not all, of the disadvantages and can strengthen a business’s overall health and bottom line. These advantages can include:

    • Differing strengths and experience.

      Partners automatically supplement each other’s skills with their own unique backgrounds and expertise. When considering pros and cons of partnership then, this pro can be extremely important as your business will likely benefit from having multiple people with knowledge in different areas.

    • Diverse opinions.

      How many decisions could be made that much better with a partner’s input? How many mistakes could be avoided by considering other opinions and input upfront? That’s not to say that everything will be smooth with a partner. But hammering out decisions together, working through the process of finding the best solutions and the back-and-forth required to find common ground can often lead to much stronger positions than might not have been achieved otherwise. The strongest partnerships are based on honesty and feedback.

    • Strength in numbers.

      For some, facing setbacks is less formidable with a partner (or partners) than alone. Likewise, combining resources—financial and otherwise—can open up business opportunities and horizons that aren’t otherwise possible. For some, one is indeed the loneliest number. For others, solo is the right way to go. If this sounds familiar, you’ll want to keep that in mind when calculating your own pros and cons of partnership.

    • Partnerships attract partners.

      Nixon writes that at critical times in the arc of a business’s development or growth cycle, bringing in a partner with new expertise can provide a competitive edge and increase the odds of success. An existing partnership makes it easy to keep the door open to future partners.

Partnership Resources

If you’ve weighed the pros and cons of partnership and decide to explore the partnership route, there are many resources to help navigate the process. Don’t overlook the importance of professional legal and financial counsel; but at the same time, you can start researching the steps and decisions you’ll need to make along the way.

One great place to begin: A small business guide, How to Start a Business with a Partner. This is a must-read for anyone considering starting up with a partner—or even for small business owners thinking about bringing a partner into an existing operation. A key takeaway: No detail is too small to be spelled out ahead of time, and complete transparency, including in expectations, goals and values—is critical.


Additional Partnership Tips

If you’re ready to move forward, deciding that partnership is a pro vs a con, here are some ofthe other tips provided that can help make your path smoother:

    • When considering a potential partner, put in the time and effort to get to know everything about him or her, both personally and professionally. For instance, what habits or traits does this person have that would be a benefit to the business? What habits or traits could possibly get in the way? Does the person’s personal life support business ownership? Would he or she be able to carry a fair share of the weight?
    • Don’t go forward without having an attorney and accountant prepare a written partnership agreement. Sometimes going through this process and ironing out the details is enough to make you see how well you’d work with that potential partner. After all, if you can’t agree on what goes into the agreement, you’re probably not suited for each other.
    • Make sure a detailed exit plan for partners and the business is included in the agreement. While you may have every intention of making your partnership work, sometimes dissolving it is the best for everyone involved. A detailed exit plan enables you to do that more easily because you both know exactly what will happen up front.