The Advisor

PICK THE RIGHT BUSINESS PARTNER
by Robert Sullivan

Before you even start looking for a business partner, the first thing you must ask yourself is why you want to have a partner. This applies whether your business has yet to be launched or is already operating. Here are some good reasons to take on a partner:

• Wanting to have a teammate with whom to share the day-to-day stresses, decisions and annoying details.
• Needing someone to share the financial risks involved in the business.
• Having someone with skills you don’t have to establish a firm management foundation for the business.

Now here are some reasons that do not justify taking on a partner:

• You’re lonely and you want company.
• You need capital.
• You want someone to lighten your workload.
• You hope to make useful new business contacts

THE SELECTION PROCESS

If, after careful thought, you conclude that taking on a partner is the way to go, your first rule of thumb is: Don’t choose a partner who is like you. A truly effective partner is someone with abilities and skills that complement your own and can expand what you can do as a team.

If you’re both engineers or have financial skills, for example, who will manage the sales and marketing?

On the other hand, both partners must share the same business goals. After all, you’re each going to be putting in considerable amounts of money, time and effort. You need to know that you agree on where you’re trying to go – for bvoth the short term and long term.

If your partner’s idea of business is to get rich quickly and that doesn’t jibe with your ethics, better to find out now – before finalizing any kind of partnership agreement.

Don’t be too quick to make a decision about taking a partner. You should discuss everything in great detail.

Unless the prospective partner is a longtime acquaintance or a family member, it will take a while to truly understand the person you may be working with. The wrong partner is worse than no partner at all.

Difficult as it may be to discuss certain things about your life – such as health or personal problems – nothing should be off limits in a pre-partnership discussion.

Two seemingly perfect partners each had money to invest in a gourmet-food business, had different areas of expertise and shared common goals. Despite having a great idea and working well together, their partnership dissolved because on partner became distracted by a recent divorce. This partner had conveniently failed to mention the divorce during discussions about the new business.

Caution: An old friend or family member does not necessarily make a good business partner. Old friends have the advantage of being known entities, but being buddies for many years may make you too casual about formalizing the business arrangement. That could mean that you would leave critical details about responsibility and accountability unmentioned in the planning process.

Similar difficulties arise when husbands and wives go into business together. In this case, success comes down to how well the partners’ skills complement each other … and how well they can separate their marital and business roles.

THE PARTNERSHIP AGREEMENT

A well-thought-out and formally executed partnership agreement is a must for a successful, long-lasting partnership. Get the help of a good attorney who will write the contract in understandable English. Ideally, both partners should have independent legal representation in drafting or at least reviewing the agreement.

The partnership agreement should include …

• Full description of each partner’s responsibilities in operating the business … including who has responsibility for such matters as hiring and firing … tax issues … purchasing, etc.
• Clear language about each partner’s initial financial contribution and how profit/loss will be divided.
• Provisions that spell out the timing of withdrawal of partnership profits.
• Clear, easily understood “buy/sell” provisions in the event that one partner wants out. Spell out how the value of the business will be determined in this situation, and how a buyout will be executed.
• Provisions for continuing the business in the event of death, disability or withdrawal of one of the partners.
• A prohibition against either partner becoming involved in another competing business.

Finally, in a two-person partnership, it is essential to add to the agreement a plan for resolving disputes. A fifty-fifty partnership creates stalemates when disagreements arise. Having each partner take 49% and giving the remaining 2% to a mutually trusted outside individual can solve this. This person, then, can cast the deciding vote and avoid a deadlock.

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