3 Things to Consider Before Going into a Business Partnership
From busy schedules and meetings to branding, marketing, and reaching the targeted audience, it takes a lot to establish a business and keep it from winding up prematurely. As a result, some business owners prefer going solo and managing a sole proprietorship especially start-ups or small businesses. In contrast, others get into partnerships with other ventures to achieve more significant economic advantages for their business.
For a business partnership to be successful, many things come into play. This article curates the three essential factors you need to consider before going into a business partnership which you will get to know after a brief introduction to a partnership in business.
What is a business partnership?
While running a business solo has its benefits and pros, sometimes forming a business partnership may be more beneficial to the growth and success of your business. A business partnership is basically a legal agreement between two or more companies or business owners to own and run a business together. The partners get to share the profits, risks, and liabilities of the business. Either of the partnering entities is called a partner.
Compared to a sole proprietorship, a business partnership is a better way to leverage market strategies to drive business growth, pool adequate resources to get more capital, and attract more investors, amongst many other benefits.
In essence, gravitating towards forming a partnership is a wise choice as two heads are better than one; however, what is even wiser is checking off some essential boxes before formally entering a business partnership.
Below are three critical things to consider before entering a business partnership:
3 things to consider before entering a business partnership
1. Know your partner’s financial capacity
Funding is a determinant of how successful a business will be. As a result, many people go into partnerships to share financial burdens to fund their business satisfactorily.
Adequate internal funding will reduce business debts and credit risks and increase business equity. Therefore, knowing the financial capacities of your intended business partner is key to entering the right partnership.
2. The legality of the partnership
It is always wise to make things legal on paper and not just contract sensitive matters by word of mouth in every contractual relationship. Have your lawyer read and vet any agreement before agreeing to the terms by signing. Also, ensure your rights and duties under the partnership are clearly outlined to avoid future conflicts that may arise.
3. Compatible vision and goals
A partnership with partners at loggerheads on company vision and goals is destined to fail before it begins. Before setting up a business partnership, ensure you and your prospective partner(s) are not at polar ends on critical issues and share a mutual understanding and agreement on core values.
In practice, there are different types of business partnerships, including limited liability partnerships and general partnerships. Nonetheless, these three essential factors apply to all the different types of business partnerships.
While there are many other criteria to consider, you have a good start with your partnership plans if you plan accordingly to these considerations. For more business tips and financial guides, you can always get more information here about running a successful business.