Since you are at the doorway to entering the small business partnership, it seems you have found your business partner (s) with whom you share the same vision.
And things are worked out so far to reach this very spot. You together feel like starting a business venture in the foreseeable future.
But before getting into it and investing a lot of time and money with this partner, you must take the necessary steps toward making this successful.
That begins right from learning about a successful business partnership and what are the foundations of it.
But most importantly, the various aspects on which your small business partnership needs to be assessed.
Well, here is an ultimate guide taking you through planning for a successful small business partnership on baby steps.
What is Business Partnership?
A business partnership, as it sounds, is a partnership on legal grounds formed under a written agreement between two or more individuals or companies.
In simpler words, two or more entities coming together to start a business together is called a business partnership or business tie-up.
The partners have responsibilities towards the growth of the business, whereas they are also equal recipients of the profit or losses as well.
The partnership is registered with the states where it is located under the law of the land.
There are different kinds of partnerships to go for as well, depending upon what situation suits you the best.
Why Opt For Business Partnership?
Business Partnership offers various business structures from which you can opt. Every business partnership structure has its own set of features and benefits.
A business partnership is more like a strategic partnership where both partners bring out their best talents and strengths to complement each other.
It allows both partners to play at their strengths and be caught by their weaknesses.
Also, a business partnership is based on the mutual prosperity and growth of both partners. They are to work towards a common goal, and that’s the primary glue between partners.
Bad Reasons To Form Partnership For Small Businesses
The most common reason for the failure of partnerships is the wrong reasons for which people enter them.
You need to put your finger on the right reasons why you are considering a business partnership rather than going solo. If these are the considerations, it’s high time you reconsider.
- You Have Insufficient Capital
Having insufficient capital translates to a lack of financing to run your business. You cannot just form alliances with someone just because they can put money on the table.
It will end up forming power struggles and eventually causing resentment. Also, the alliance won’t work due to the set of different priorities in the business amongst the partners.
- You Don’t Have a Particular Skillset
Just because you are bad at the technical aspects of a business or a sales aspect of the business isn’t good enough to make a partnership with the person who you think they are.
Skillset alone can’t be the parameter of partnership. You can hire or outsource such skills easily, and that’s even- no strings attached! Then, why would you do it?
- You’re Just Afraid to Do It Alone
If your reasons for going up for partnership is just the fear of being a small business owner on your own, then you need to identify that.
It is indeed scary and alone, but that just doesn’t mean you need to necessarily partner up with someone.
- Do You Want to Lend Connections
It’s not a good reason to partner up with someone just to lend their connections. It can or surely will backfire especially when you just don’t need a partner.
Identifying A Strong Small Business Partnership
Just like a good marriage, any successful small business partnership doesn’t need short-term mutual interest but long-term trust and compatibility.
It is essential that there is an optimal level of compatibility in terms of vision, values, expectations, financial resources, and goals as well.
Compatibility is not about having similarities or agreeing on everything. It believes in each other. It is to identify mutual respect and passion for achieving a single goal.
But sometimes, the differences between you and your business partner can be felt elevated or exaggerated just due to the pressure of building your business.
So you need to have clarity on what you both want from each other.
What you require to set things straight right from the beginning is setting up expectations.
Setting Up Expectations For Small Business Partnership
So how will you set up expectations for small business partnerships?
Well, it is a conversation that might not be easy, but surely vital to have.
You need to clarify the various aspects of your business partnership relationship, every possibility, and roadmaps to explore.
Before getting things written, you need to be on the same page. You should not presume the position of your business partner on any matter without a discussion.
To set the expectation right, you and your business partner are supposed to ask these questions before starting the business.
What you can do here is that your business partner can answer these questions individually.
Then, you can sit together and compare notes and find common ground on every conflicting or contradicting area.
These questions need to be answered individually because, on the comparison, you both can get the idea of an individual perspective on these factors.
After then, you can steer the conversation to settle on common ground without neglecting the primary perspective of each other.
So, these are questions to work on.
Why are you opting for small business partnerships?
The first thing to ask yourself is why you are even going for a small business partnership instead of starting it alone.
You need to dig deep and find the real motivation for pursuing a small business partnership.
But to make this question more sensible, don’t think about the person you will partner with. Just focus on why you want business partnerships in general.
How much are you comfortable with the partnership?
Do you even need a partnership for your business? Consider whether the benefits of being in a partnership match the complications and compromises it requires.
Ask yourself whether you are going for a partnership just because you are scared of going alone or if there is a genuine reason.
Think about it in the long term. Make sure you decide with complete honesty and all for the right reasons. The same goes for your partner as well.
Don’t forget to cross-question each or discuss these points.
What vision do you hold for this business venture?
Your will to start a business venture isn’t enough.
And the idea behind your business venture is not the vision. You need to figure out what your aspirations are with this venture.
Whether you want a fast-growing multi-region startup or a small local business, you should have clarity on that. You need to focus on where you want to take this business in future years.
What are your expectations for the size of the business or annual revenue?
Decide your specific vision and compare it with your partners.
What position will you hold in a small business partnership?
You need to decide your position in this small business venture. Outline your job description in the organization. What will be your responsibility in this small business partnership with your company? It is essential to be very specific with this definition.
What will this future business partner offer that you cannot achieve on your own?
If you ask what the single most trait of a healthy small business partnership is, it must be a certain level of respect for each other.
And that only comes from understanding each other based on the fact they both are bringing their skill, talents, and resources into the game.
You have to examine your and your business partner’s dependency on each other and venture as well.
Also, assess how partnering up makes this business venture more successful than it could have been if you were alone.
Especially if you are partnering up with a good friend or family member, you need to apprehend these points objectively.
How much time will you commit to investing in doing your business?
It is certainly one of the most important questions to ask how much time do you commit to investing in building the business?
You have to discuss whether you and your business partner are pursuing this full-time or along with your day job.
How you are going to sustain this balance and also how these changes over time. There must be more specific and realistic questions, such as how much sleep they can sacrifice to maintain balance in their business.
The aim is to entertain every specific possibility in the future regarding this partnership.
How are you going to resolve disagreements?
This is going to be a long-term small business partnership, to commit. So here, the question is not about if but more about when significantly conflicting disagreements happen.
So it is better to acknowledge such conflicting situations beforehand before it arises. Start by setting up ground rules to behave at such moments.
Address questions like how you will work on resolving the conflict when the tensions get high. Or whether one needs some time to think it over or just go to resolve it.
Also, think over the possibility of working with a partnership counselor or business coach who can help in such scenarios.
It is advised to talk out various conflict possibilities and scenarios right now to get prepared for such times.
How Both Business Partners Contribute Financially In This Venture?
You know, small businesses require investment to kickstart things at the early stage. Well, it goes further with the scope of development and opportunities for your business.
So it is essential to discuss who is going to contribute financially to the business. Raise questions like how much to expect from each other.
Also, talk about the practical timings of these investments.
Make sure these won’t be just hollow promises but planning-backed statements. The clarity gives you and the business more power so you can decide your strategies accordingly.
Do remember that bringing a partner just for the finance is not a worthy enough reason. Such people are called investors, not business partners.
It is crucial you make your relationship with the right credentials.
What financial liabilities both you and your business partner are currently holding?
Starting a small business with a partner requires a certain level of dependency on each other on at least factors. Say, finance is one of them.
And since financial liabilities impact your decisions, let alone financial but even otherwise, it is necessary to acknowledge each other’s accounts on this.
You need to ask each other about any financial baggage or loan repayments they are into. This is important because, somewhere, you are tied to your business partner financially.
You need to be very clear on moving on with a small business partner with a less-powered financial situation.
The financial health of you or your business partner can dictate the priorities for the investment of time, money, and effort.
So, the more you discuss this, the better it will be!
How are you going to manage business expenses?
You have to figure out how you are going to fuel your business. It also depends upon your spending habits and investment decisions towards the venture.
Now since you are not the only decision head for the venture, it is vital to understand your business partner’s stand on this.
See whether you are a spendthrift or you spend your money in a much more relaxed and calculated way. And even you may fall somewhere between.
Expenditure habits of business partners can be a big reason for a major disagreement in your small business.
Overspending often comes out as great trouble in business relationships.
But you can prevent this by setting up a business budget early on.
Decide a reasonable budget for your small business with your partner. Also, talk about how you will manage the additional business expenses.
The decision of whether a partner can make a purchase of his own or not and when he is allowed to do it, and when not must be discussed.
Be more clear about the ground rules you set here.
Do you and your business partner share the same personal or moral values?
You and your business partner need to be on the same page when it comes to personal values or moral values.
The expected decisions on the basis of their respected values should be obvious to you and each other.
Business partners also decide whether they intend to follow the law in their small business processes, or you both decide some things can’t be just black and white.
Personal values are what drive the decision of the person. So it is necessary to align with your personal values and also with your partners as well.
This is to make both parties free from any value conflicts at the time of taking such standpoints.
How will you measure the contribution of each other?
This happens all the time in small businesses with tied-up partnerships.
In the stressful times of building your business, partners are very quick to assume, easily as well, that the other partner isn’t doing enough or losing interest.
This can lead to one mounting partner’s resentment toward the other.
To avoid this, you must define some clear and objective metrics on the basis of the performance can be decided.
These performance indicators will depict the quantification of the contribution from both sides.
If one fails to meet his part of expectations, you can further decide things on the basis of factual records, not just feelings.
What is the tolerance of your business partners for debt?
You know, as business partners, you are financially dependent on your partner, and so does he or she to you as well.
There will be more investment than just the cash upfront for your small business. You need to see what financial contribution your partner can make in the future.
You might require a business loan to fund your company. Since you both have to decide on this decision, the tolerance for debt varies for different people.
So just now, discuss the possibility of going for a business loan and how much individually you can tolerate debt or want to.
Also, talk about the size of your business loan. What collateral will you be willing to put a personal guarantee? Can you fund the short-term expenses of the business via a business credit card?
What type of Business partnership structure will you select?
The legal structure of your business partnership will control the decision to run the business. When you choose a structure, your responsibilities will be much more defined by the law of the country.
Here is some different business partnership to structure your business:
When all the partners of a business partnership participate in the operations and take mutual responsibility for the debt taken upon in the business’s name.
It attracts most of people as it is the easiest partnership structure to start with. Most business owners find it simple and easy to start.
Before you agree to the general partnership, connect with an attorney to assess the risks of the agreement.
A limited partnership in a small business is a structure where partners take an uneven level of involvement. This is in the case where one partner is unsure about its role and is actually an investor not participating in business operations.
Limited Liability Partnership
Just like the name suggests, it is a business partnership structure where the members’ financial responsibility is limited. This is basically a business partnership equivalent of a limited liability company.
If you want to create a small partnership business where you and your business partner are equally involved, this kind of partnership might be the best choice for you.
How will you resolve legal disputes with customers or with each other?
You wouldn’t really like to think about lawsuits or any legal dispute to face in the future but it is indeed a possibility while doing business.
This surely needs some thinking to do with your business partner.
Are you going to include an arbitrary clause in the contracts of customers or vendors to settle or resolve disputes privately?
What about you and your business partner not coming out of something except through the legal procedures?
You have to tick as many boxes as you can with these legal dispute cases.
How and when Will You distribute the profits in the business?
You don’t have any single worked-out way to share the profits with your business partner in a small business.
Look for who is investing the majority of the financing in the business.
So how can responsibilities be split? Who provided the majority of personal connections?
And all these questions are essential to distribute the profits easily.
What are the strengths and weaknesses of you and your business partner?
You have to identify your strengths and weaknesses along with your business partner. It leads you towards a better partnership relationship.
It is essential to find out the strength and weaknesses of each other to leverage it whenever a certain skill is required.
Understanding that about each other gives you more respect towards each other as well.
What is your buy-out plan?
A buy-out plan needs to be figured out before setting up your business partnership only.
It is something when one business partner wants to leave the venture where the other partner wants to continue.
In this situation, how are you going to find out a fair purchase price? The terms and process of this buyout need to be predetermined.
What happens in the case of your partner’s death or disability?
Well, it is not something one would like to think about, but you have to cover all the possibilities.
In the legal paperwork which is required to be completed in order to form your small business partnership, there should also document about the event when a business partner dies.
It is wiser to connect to your attorney and discuss various options for transferring ownership.
You and your business partner need to figure out together the best solution for this particular scenario.
Tips To Make Your Business Partnership Successful
If you all decided that partnership is the structure or arrangement you want to go for, then it is essential to plan things strategically.
You need to do some research on educating you and your partner on the business partnership. Having said that, this guide is all for doing that only.
So here are some tips to make your business partnership more effective
Strategic Planning Before Partnering Up
You need to plan everything strategically before you get into the business partnership process. Clarity gives you power, so start from there.
If it is too much for you or you really want to make it work, take the help of an expert. You need to create the dotted lines for yourself and your partner to give more focus on the pre-work of business partnerships.
If you’re good here, you are going to be good further as well.
Set Clear Expectations For Each Other
Something mentioned earlier as well just brought up again to highlight this point’s significance. Setting up expectations for each other is the most important aspect of a business partnership.
The best way to make your business partnership successful is to focus on the details to make your partnership less emotional and more technical.
Setting expectations for each other and on which both parties are aware and agree on this stage improves understanding.
You need to set in what domain both partners need to work. How much work is expected from the other partner? And so on.
It eliminates misunderstanding, confusion, and clashes between partners.
The goal is to make this relationship go through the least or no complications, even in any disagreement.
Form Partnership With Someone You Admire And Respect
Sometimes the partnership you choose is for the wrong reasons, or you aren’t just enough aligned with them for this long-term professional relationship.
But more than that, you are just not connected enough with the person. You might not have worked closely with him.
As a result of what, you won’t admire them or respect them enough to give them credentials at that required level.
The better situation is to have mutual respect for each other and some level of appreciation for each other.
Give Your Business Partnership Space And Time To Grow
A partnership needs time and space to grow and scale the business. It is not just about sharing your abilities and joining your resources to give it all to a unified business.
It is about two people embedding their business intelligence on a long-term basis to start something new altogether.
You both need to allow flexibility in your business relations. So it takes some time to work out and get to know each other.
Remember, even with a few hiccups, it demands time and space to reach its highest potential for maximum results.
So, take your time and breathe. Just try to be on the same page with your partner.
Focus Specifically On Honesty And Transparency
This very well extends to the previous point where you need to be flexible in order to develop better relationships with your partner. Give it room to grow.
Well, that also comes from the fact of how honest and transparent you are both to each other related to your business.
Never run away from the conversation, even if sometimes it feels difficult.
Maintain open and frequent conversations and personal interaction with your partner as much often as possible.
Whether it’s good or bad, you are in this together, so put things in front, and you know what to work on.
Talk About Vision As A Long-term
You have to strategically plan a business partnership with a long-term vision for the brand.
In many ways, it is more like a marriage where both partners commit to participating in each other’s growth and development.
The vision you will work on must be long-term, and that changes a lot. You need to see the larger picture and overlook hurdles and learn to set straight the differences.
Thinking long-term changes the dynamics of what is important and what’s not as well.
Things To Consider While Setting Up Business Partnership
- Name of the Business: Make sure you register the business name which is not already registered earlier. You don’t need to register a business name when you are trading under your personal name.
- Limited Partnership or General one? A limited partnership falls into the consumer affairs section, where one or more partners are limited in terms of their obligation for the business and liability for the debts.
- Superannuation: All the partners or any eligible employees are supposed to get superannuation from this partnership only.
- Financial Registration: You need to apply for financial registration, and also for GST ( goods and services tax) is required. It depends upon where your demographics are and also depends on the law of the land.
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Business, marketing, and blogging – these three words describe me the best. I am the founder of Burban Branding and Media, and a self-taught marketer with 10 years of experience. My passion lies in helping startups enhance their business through marketing, HR, leadership, and finance. I am on a mission to assist businesses in achieving their goals.