As a CEO, president or business owner, have you ever had a day when you thought to yourself: Should I bring a business partner into the company? Or… I wish I had a business partner. Perhaps someone approached you with a business proposal to become partners. Or perhaps, you think it’s the most viable way to make the business successful by having a business partner. With any company, there are different stages the business goes through, just as there are different stages of life. Your business can be a living, breathing powerful force for the greater good. Having the right people in your company, including a potential business partner, can be the difference between success and failure.
Many times, throughout the years, business people may consider bringing a business partner into their company. Sounds like a good idea – at least initially, it does. The business partner will bring cash to the company for business growth.
In my years of experience advising CEOs, presidents and business owners throughout the United States across a wide range of industries, I’ve many times talked with people who wanted to bring partners in for different reasons. Such as:
1) investing cash into the business
2) a certain skill set the company needs
3) the company isn’t doing financially well; they are looking for someone to bail them out.
Often, bringing in a business partner doesn’t work out well. It may initially sound like a great idea but in doing so, you’re…
- Giving up your freedom
- Giving up your autonomy
- Giving up the opportunity to make decisions.
You are no longer the sole decision maker due to the business partnership.
There’s absolutely nothing wrong with having a business partner IF you bring the partner on for the right reasons.
Business Partner Guidelines To Consider
Start by asking yourself:
- What are the right reasons to be in a business partnership?
- You bring on a business partner because, at some point, you’re going to sell your business and a formal agreement is in place for when that time arrives
- The business partner is going to take over the business and buy you out; You may stay on for a specific length of time as part of the transition
- The business partner brings something special or unique to the business. The partner could be an expert in sales, operations, manufacturing or other specific areas of the company.
- The business partner brings an intellectual understanding and market share you simply don’t understand or have.
- You need someone who can create more business.
If there is a real reason to bring a business partner into the company, give it serious consideration.
Caution: Once you bring this individual into the business, you cannot easily get them out. You cannot force them to sell their percentage of the business without a potentially lengthy legal intervention. It could prove to be an emotional and costly venture in the future.
You need to make certain you are going to be able to get along with this person. Often, you really don’t get to know someone till after some sort of formal relationship is formed and developed; till various situations, good or stressful, are experienced together. If you find over time you cannot trust or get along with a business partner, then everything you’ve worked for is suddenly very unpleasant and uncertain. All the freedom, all the joy, all the excitement about coming to work every single day could quickly vanish. That’s not being negative about the potential partnership. It’s being realistic. Make sure you make a highly calculated, thought through decision before you risk it all.
Note: If you move forward, make certain you both have separate attorneys/CPAs to finalize any formal agreements regarding the company; that as much as possible is properly spelled out and defined before the other person joins the company in an ownership role.
Keep asking yourself:
- Is this really what I want? What other alternatives are there with my business?
Yes, people do bring partners into their business successfully. But generally speaking, it doesn’t work – or at the very least, there can be rocky roads that could have been avoided. Know exactly why you’re doing it. Be very clear with yourself. If you are just doing it for the money, for the cash, for the infusion of cash flow, it might not work out so well, ultimately.
- Know exactly who is responsible for what in the organization.
- Understand each other’s role.
- Have a detailed agreement written by attorneys.
- Agree on how money is spent and the expectations regarding profits and take-home pay.
- Many partnerships are dissolved due to disagreements directly related to money and finances.
If you have a business that is attractive to a prospective partner, the goal is to keep the business strong. Understand that business is about prospecting, sales and consistently closing new deals. That’s how you make money. That’s how the business continues to be profitable.
If you’re at the stage of selling the business, make certain you are getting the most value from the shares you are selling, and the years vested in the business. If you sell to a partner when the company is going through hard times or is weak in some aspect, but the opportunity is there to turn around the business, don’t be too hasty in giving up on all your hard work over the years. You may ultimately regret the decision. Instead, consider how you can better surround yourself with those that can help you to succeed through smart hiring. Know what you and your business truly need before seriously considering a business partner.
Have A Strategy To The Business Partnership
As you can see from reading this article, there is A LOT to think about! There is no one single answer that is right for every business person. Bringing on a business partner is a very serious venture. It’s something to really think about. It’s something that doesn’t usually work out well and usually ends up with an unpleasant, expensive and stressful partnership break-up.
Important: If you do decide to go into a business partnership with someone, make sure you have a buy-sell agreement so if one partner decides or needs to buy out the other, there is a formula and a plan for doing that as seamlessly as possible.
Furthermore, and this is my final advice in this article: If you’re going to be in a business partnership, you want on your team a business insurance agent who knows you and the company. Both you and your partner need separate policies naming the other as the beneficiary. Insure the other person in the partnership for what the business is valued at. Hopefully, nothing ever happens to either you or your business partner. The designated heirs or estate will get the money from the insurance policy and the surviving owner will get the business if the policy is written that way. Also, make sure you update your corporate documents or partnership agreement to reflect insurance buyout. Again, make certain everything is written very clearly and in a fair, equitable way for everyone involved.
What Business Outcome Do You Want?
Bringing on a business partner is somewhat similar to a marriage. It just may be a lot harder and messier to get a divorce without getting the best professional advice.
In closing, don’t skip having all the necessary professionals advise you. You may be very sorry later if you don’t.
To your success!
Business expert and strategist, Howard Lewinter, guides – focuses – advises CEOs, presidents and business owners throughout the United States across a wide range of industries, to MORE success – MORE profit – less stress. Business people trust Howard’s vast business knowledge, practical advice, intuitive insight and objective perspective to solve business problems and issues. Get MORE from your business! Talk business with Howard: 888-738-1855.
Connect with Howard on LinkedIn
Follow Howard on Twitter
Like Howard on Facebook