Are two heads better than one? When it comes to a small business partnership the answer can be a resounding “yes”. Having a partner to share responsibilities and costs sounds like a win-win for a busy small business owner. However, if you don’t set up your partnership for success, things can go downhill quickly. Here’s important information to help you establish a partnership that works for all parties.
What is a Partnership?
In short, a partnership is a single business where two or more people share ownership. Each partner contributes money, property, labor and/or skills. In return, each partner shares in the profits and losses of the business.
Types of Partnerships
There are three types of partnerships you can enter into. From the SBA website:
- General Partnerships assume that profits, liability and management duties are divided equally among partners. If you opt for an unequal distribution, the percentages assigned to each partner must be documented in the partnership agreement.
- Limited Partnerships (also known as a partnership with limited liability) are more complex than general partnerships. Limited partnerships allow partners to have limited liability as well as limited input with management decisions. These limits depend on the extent of each partner’s investment percentage. Limited partnerships are attractive to investors of short-term projects.
- Joint Ventures act as general partnership, but for only a limited period of time or for a single project. Partners in a joint venture can be recognized as an ongoing partnership if they continue the venture, but they must file as such.
Consult a Legal Professional
Ensure that you have everything in place legally to establish a partnership. It might cost a few bucks but speaking with a professional can help avoid problems down the line.
Write it Up
Even the best of friends or closest of relatives must put a written document in place to outline each partner’s responsibilities. The website AllLaw.com has a simple partnership agreement you can use as a template. Have the document reviewed by an outside party, ideally an attorney who specializes in small business issues.
Identify Strengths and Weaknesses
What does each partner bring to the table? If you’re looking for a partner, seek out those who have strengths that might not be in your skill set.
Define Jobs and Responsibilities
Who will oversee accounting? Which partner is in charge of hiring? Does one partner want to spearhead vendor relations? We hear it all the time – small business owners wear a lot of hats. Make sure the hundreds of tasks that it takes to run a successful enterprise are divvied up fairly and realistically.
Disagreements and Problems
Now is not the time to put your head in the sand. Although discussions about problems can be uncomfortable, letting them fester won’t solve anything. Agree that you’ll face issues swiftly and look for resolutions as soon as possible.
Text and email are a great way to communicate. However, if you have an important issue, problem or opportunity, pick up the phone or meet in person. Staying engaged with your partner is vital. It’s a good idea to have a set meeting time each week to connect and discuss the business.
Share a Vision
This is another great opportunity to put pen to paper. Discuss where you want the company to go and agree on a path. Work together to define a company culture that works for you both and fosters small business growth.
Is your partnership not working? If you’re unhappy and the business is suffering, take a step back and look at your options. Ending the partnership might be the best route to take. Now is a time you’ll be extremely happy to have official documentation in place to protect both parties.
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