Committing to a Business Partnership

Individuals who are interested in buying a business will often entertain the possibility of developing a business partnership. Smart business partnerships can significantly strengthen one's business structure. The benefits are numerous, including the financial benefit of sharing any down payment requirements, which is no small matter.

Forming a successful business partnership is not as simple as comparing portfolios, however. It is of the utmost importance that one carefully commits to a partnership by analyzing a variety of factors. For example, going into business with a partner is very similar to going into a marriage, and it is widely known that disagreements over finances are one of the most common reasons for the dissolution of a marriage. Because money is the root of a business partnership, choosing a business partner wisely is nearly more difficult than choosing wisely for matrimony.

For individuals who hope to share investment responsibilities and daily managerial duties with a business partner, there are four key matters to consider:

Common Vision
It is imperative that potential business partners honestly express their expectations for the business (and their role in it) for the next few years. A business partnership is a relationship that must be built on trust and shared hopes.  If one potential partner anticipates selling the business in a few years to turn a profit, while the other potential partner plans to retire from the company, their two visions are diametrically opposed. There must be harmony in what potential business partners envision for their investment.

Fair-weather Partner?
Going into business with another individual can be a risky endeavor. One's business partner must be worthy of implicit trust. While business partners may work well together when the company is thriving, what happens when profits decline, legal issues arise, or other difficulties present themselves? It is vital to choose a business partner who will remain present and supportive during trying times. Selecting the best candidate for a loyal business partnership is an act that relies primarily on instinct, but examining someone's history of business practices can also be enlightening and useful.

Necessary Capital
Of course, any potential partner must be in a position to provide capital up front, whether through a loan or partial seller financing, but will this individual be in a position to contribute even more in the future if necessary? If not, how would the corporate structure be affected when only one partner has funds to assist the business? It is prudent to assess a potential business partner's predicted worth before committing to buying a business with said individual.

Completing the Puzzle
Ideally, business partners will not be carbon copies of each other; instead, they will possess dissimilar skill sets that complement each other, thereby ensuring that at least one owner will be equipped to handle a specific function or area of the company. If both are adept at sales but lack in managerial experience, the strengths of the company will be unbalanced, metaphorically tipping the business until it falls (i.e. fails). Where one partner lacks, another should excel, and their skill sets will fit each other tightly to complete the puzzle of the business.
A business partnership that fails can be equally as painful and costly as a divorce. It is essential that all parties involved be clear and frank about what they want, what they expect, and what they are capable and comfortable contributing, both financially and otherwise. Making educated predictions about the future of the relationship will save everyone from hardship in the future.

If you would like assistance with buying a business or determining whether a business partnership is appropriate for you, please contact George & Company, located in Worcester, MA. We have honed our business skills over decades of appraising, selling, and financing small to middle-market companies. It would be our pleasure to assist you in making partnership decisions that will best benefit you.