The Most Important Questions to Ask Before Taking on a Business Partner
Taking on a business partner is really no different than entering into any other important relationship. In fact, a business partner is much like a marriage, and perhaps even more binding than a marriage. The purpose of this guide is to help you ponder some important pre-partnership questions.
Ask yourself "why"Before pondering the many financial or legal aspects of any relationship it is important to take a step back and ask yourself the most practical of questions: "why are you entering into this relationship in the first place?" This is a multi-part question which may include the following questions, most of which require you to look into yourself and be truthful about your goals, fears and personal issues: What is it this potential business partner brings to the table? For example, do they bring in contacts? Resources? Charisma? Sales technique? Business acumen? Business experience? Specific knowledge? Business management? Do you share a healthy dynamic with your new potential business partner? Is there anything about your past relationship with this person that might negatively impact your ability to function as a manager of your business? Have you had any issues working with this person in the past? Do you have a volatile relationship with this person? Do you have a prior romantic relationship with this person? Are there any negative qualities about this person that you see as being problematic for the healthy functioning of your business or your ability to manage the business? Are you entering into this relationship for the right reasons? Personal reasons? Business reasons? Are you teaming up because of fear or because of opportunity? Is this person generally on the same page as you? Are your long term goals consistent with each other? Does this person have equal or better qualifications than you? Does this person have any of the expertise or qualifications you would look for in a manager of your business? Are you prepared to trust your entire life's work, branding efforts, and established business relationships in the hands of this person? The point in general of traveling down this road of seemingly endless questions is to make sure that you are honest with yourself when trying to determine whether this proposed relationship is in your best interest.
Do you really know your partner?Due diligence is key whether it is taking on a partner or a new client for that matter. Knowing your partner takes more than a conversation over cocktails. Like anything done right it requires preparation and research. In the context of a joint venture it may even mean access to the partner's books and records. It certainly means looking into the prior litigation the partner may have been involved with. It means getting an understanding of potential liabilities as well as the assets. It means looking into credit scores and prior business dealings. It means understanding receivables and liabilities. It means looking at your potential partner's resume and resources. And above all else it means understanding who you are and whether your personality, business acumen, and long term or short term goals are consistent with your potential business partner's.
If it aint in writing it aint worth jack!!There is a popular saying in contract law: "a contract is only as good as the paper it is written on". Therefore, if you don't have a contract, good luck trying to enforce the terms of that relationship! Any proposed business relationship should have business-governing documents including partnership agreement (or operating agreements in the context of LLC's), possible employment agreements (sometimes referenced in the business-governing documents themselves), non disclosure agreements, licensing agreements (if one person is licensing the use of his property for the company), and certainly solid contracts for use in the business itself. You want to ensure at the most basic level that you have clearly outlined the parties' expectations, the allocation of profits and losses, buy-out provisions if applicable, employment, management, and the events which may or may not cause the business to terminate. The failure to have these documents is the biggest reason businesses fail. People make the mistake of thinking their relationship is above all that legal mumbo jumbo. The fact is, not having these agreements results in very expensive litigation when (not if) the time comes that there is a dispute between the business partners. The situation usually ends up being a complex litigation that causes the business to bleed internally along with all of your hard work. Don't make the mistake of thinking a handshake means anything more. Retain a competent business attorney to assist you in the process of drafting the proper legal documents for your business and proposed partnership.