Small business owners say that some 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?
Inc.com discussed some of the basic advantages and disadvantages of a partnership structure that were featured on the legal site Nolo.com. 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 is also considered a disadvantage: All members of a partnership are personally liable for business debts and liabilities.
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.
- 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 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 weren’t otherwise possible. For some, one is indeed the loneliest number. For others, solo is the right way to go.
- 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.
If you 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 wsj.com 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.
Among the other tips provided:
- Put in the time and effort to get to know everything about your potential partner, both personally and professionally.
- Don’t go forward without having an attorney and accountant prepare a written partnership agreement.
- Make sure a detailed exit plan for partners and the business is included in the agreement.
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