According to U.S. Small Business Administration data, a business is more likely to survive tough times with the support of a good business partnership. Also, a business with multiple owners has a better chance of surviving that first 5 years than sole proprietorships.
That said, sole proprietorships make up more that 70% of all businesses. So, if partnership businesses are more likely to survive, why are there more sole proprietorships? The answer is: it can be hard to make a good partnership.
What does it take to make a good partnership?
- Having a shared vision.
You need a shared vision for the partnership to work. If you have differences in your visions, find a way to compromise that suits both partners. For example: you want to open a restaurant with fine dining and your partner wants a bistro. You'll find you disagree on most every aspect from décor and hiring to pricing and marketing.
- Strength compatibility.
Everyone has different personalities and skills to bring to the business and when partners need and rely on each other's abilities it makes the partnership stronger. For example: One partner is good at sales and marketing, while the other is good at accounting and inventory management. This allows each partner to focus on what they're good at knowing their partner can take care of the areas where they are weak.
- Define roles and limitations.
It’s important to define the responsibilities for each partner before you go into business together. Agree on things that will need consensus and those do not. Defining the roles and limitations will help resolve any future disagreements. When the limits of each person is outlined, it will help to avoid conflict as well as, identifying areas that you may need to hire someone to fulfill a skill gap in your partnership.
- Strategies to resolve conflicts.
Even if the fundamentals of your partnership are strong, conflicts are certain to arise. It’s important to set up a regular schedule of communications between partners to resolve any conflicts. This will allow each person to discuss any issues without judgment. When a compromise is still difficult after the discussions, you may need a neutral arbiter, such as a consultant or a trusted employee.
- Set-up a goal system.
Establish a goal system for your business goals as well as individual goals. You will need to schedule regular meetings to:
• Set your goals
• The steps necessary to achieve those goals.
• Decide who needs to take the next action.
• The expected date of completion.
- Establish an exit strategy.
When things aren’t working out, it can be harder to exit than it was going into business with a partner. That’s why you need to establish a “buy-sell” agreement when you first start a business relationship. The agreement should state just how a partner can exit the business and at the same time create a fair valuation system to pay the exiting owner.
During an ownership transition it’s important that the buyer nor the selling partner, feel taken advantage of.
Do you need a buy-sell agreement? It’s a good idea consult an attorney and a CPA when you decided to develop an agreement. It’s also a good idea to review your agreement from time to time to make sure your existing agreement is up to date. For assistance contact our office at 866-497-9761 to schedule an appointment with our advisors.