Starting a business with a partner brings many benefits, including having someone to help celebrate your successes. You’ll also find it’s easier to raise capital and get business loans when you have at least two capable people involved. But there are also some risks, especially if you’re entering into business with a cherished friend. Here are some things to consider before agreeing to partner with someone.
Disagreements Are Inevitable
All seems great in the beginning. You’re starting a new venture, and everything is new and exciting. It’s probably impossible to imagine a day when you’ll butt heads with your partner, but chances are, it will happen. It’s important to take off those rose-colored glasses for a moment and put in writing how you’ll resolve things if you can’t come to an agreement. Quite often, this means using a mediator.
You Could Be Personally Liable
In a business partnership, what one owner does reflects on the entire company. Even worse, it can extend to you personally. It’s important to structure your business in a way that protects all parties involved. A general partnership won’t give either partner any protection whatsoever, which means you could lose your home and entire life savings if something goes wrong. For maximum personal protection, consider a limited liability partnership. At the very least, choose a limited partnership, which offers some protection.
You’ll Split the Proceeds
One of the best things about going into business with a partner is that coming up with capital isn’t completely on you. But you’ll start to forget about that benefit when you realize you also have to split all the money you make. That also means it will take longer for your business to become profitable enough to pay you a salary since you’ll have to pull together the money to pay both partners.
You Never Fully Know Someone
Many friendships have been lost over partnership disputes, and in some of those instances, the parties were friends for years beforehand. Even families have broken up over business partnerships, proving that no matter how well you know someone, you can’t predict what working together will be like.
The best way to ensure your partnership is successful is to make sure you’re protected. Have a solid partnership contract in place, preferably drafted or at least reviewed by an attorney. Make sure you protect yourself by outlining everything from dispute handling to distribution of proceeds to how things will be managed if the partnership ever needs to be dissolved.