Business Continuity Audit » Business Partnerships

Business Partnerships – Doing It Right

admin — Thu, 25 Mar 2010 22:30:21 +0000

So you are considering starting a business with a partner or partners. If you’re doing so keep in mind some absolute truths. Most business partnerships end in a break up by a factor of 8 to 1. I know you’ve got the perfect formula – I’ve heard it before but… heed these words of advice. You must be willing to suffer the loss of your relationship if the business partnership ends.

Is your partner a friend or relative? If he or she is close to you, keep in mind the importance of this relationship. If you are going to have a partner, here is the best way to reduce compromising your relationship. Yes, even if they are your best friend or family member. Define to the finest detail your roles and responsibilities, all of your expectations and then have them reviewed by a non-biased third party (NOT YOUR MOM) and be sure the reviewer has a business background. Next, define exactly how all the income is going to be divided up – to the penny. Third, have clauses defining exactly how you may buy each other out for and how much in what type of payment if one party decides to leave. Don’t ever let the other party walk without a financial payoff — even if it is small. They will forever feel you jipped them and you’ll have an awkward five hundred pound gorilla between you forever. Finally, sign a document agreeing to these roles, responsibilities and financial issues. Consider this a pre-nup and be sure to understand the reason you’re doing this. You want to remain friends first and foremost because all the money in the world won’t buy you that relationship again. So, plan it out and make sure you are both on the same page with the same interest in starting a business. Don’t believe for a moment that you can separate business from your relationship — it’s a lie.

Have you “really” addressed the stuff that has been on your mind but is hard to talk about? Cover these things now before you go into a partnership and put plans in place that force a positive outcome fueled by your ability to recognize both of your shortcomings. Know your own personal limits and those of your partners. Most of the limits and problems in a business are fueled by personal “stuff”. It’s not that the personal stuff is all bad. Maybe you or your partner to be is married to a jealous spouse that will certainly have a problem with you starting a nationwide trucking service gone on the road 6 nights a week. Maybe your Mom lives nearby and requires your daily attention of which would certainly come to a screaming halt if you open that sign shop. Let’s face it, people are more important than money. If you don’t think so, ask the lonely and bitter millionaire. You will have to adjust your business model to suit both your lifestyles and personalities. This is the stuff, the personality “face the music” stuff that if addressed up front, during the planning stages, will reduce the likelihood of breakdowns and break ups of your new company.

By: Dan Nichols

Business Partnerships: Negatives and Positives

admin — Tue, 01 Dec 2009 16:12:53 +0000

An individual diving into business ownership is a risk. An individual has to deal with all of the decision making regarding hiring and finances. Furthermore, individual business owners also have to attempt to overcome their weaknesses and present them as strengths.

Due to the difficult decision making needed and the incredible amount of skill involved in owning your own business a lot of people like to involve themselves in partnerships but just like any other relationship, business partnerships have negatives and positives.

1. One positive of a partnership is an increased amount of contacts.

2. Another positive is that one persons strengths can make up for another ones weaknesses.

3. An additional positive is that having financing coming from multiple sources is a great asset to any business.

4. Partnerships also allows for more ideas to develop. Two heads are better than one when it comes to creating ideas and problem solving.

Below are some negatives involved with business partnerships.

1. The profits have to be split. With a partner you are automatically giving up a percentage of income to someone else.

2. Another negative can be disagreements. Disagreements about different aspects of how a business should be run can lead to turmoil between partners.

If you are considering starting a business with a partner, review this article to make sure it is the right thing to do.

By: Andre Bias

Business Partnerships – What Do They Involve?

admin — Thu, 29 Oct 2009 18:54:38 +0000

What is a Partnership?

A partnership can be defined as; two or more people or organisations carrying on a business together with a common goal of making a profit. It is an association of two or more persons carrying on a business as co-owners, with the objective of making a profit together.

Arises from an Agreement by Two or More Parties

It can be established by an oral agreement or written contract and is normally assumed to exist when there is a perceived intention (by the parties concerned) to be partners. A partnership is a common and simple method of structuring a business. It is inexpensive and does not have to comply with many regulations or laws, except those contained in the partnership agreement which binds the parties involved together.

A partnership involves co-owners who have agreed to work together in the business and the partnership has the intention of making and sharing the profits between the partners. If these criteria are met then you are operating a partnership. Different rules apply for other structures such as a sole trader or a company. A partnership can come into existence by the people concerned discussing it and agreeing to go into business together.

How Does a Partnership Work?

A partnership involves a contract between the partners to engage together in a business. They agree that the purpose is to make a profit and that the assets and value of the business, as well as responsibilities are shared by the partners.

A partnership is unlike a company, which is a legal entity in its own right. A partnership is not a separate entity (or legal person), even if there are many partners. You usually go into partnership because the growth of the business is such that more capital, expertise, or more people are required to cope with the growth of the business.

Some partners may contribute nothing at all except that their involvement in the business, yet they still have the full rights of a partner. A partner that contributes property or capital, but is not involved in the business (they do not provide any labour or skills on a day-to-day basis) is termed a “sleeping partner”.

The law under which partnerships are administered in the USA is the Partnership Act. This Act sets out the law regarding how partnerships are to be run and is applied where there is no written partnership agreement in place. A partnership agreement can replace most of the matters laid out in the Partnership Act.

4 Critical Elements in a Partnership

There are 4 important elements in any partnership.

These are:

Not a legal entity.
Unlike a company, the partnership is not recognised as a separate legal person (legal entity) as apart from its owners. In a partnership, as well as in a sole trader business structure, the owners of the business are the people who are the entities and liable for the business. Liabilities unlimited.
The partners in the business have unlimited liability as to the debts of the business. This is not the case with a limited liability company where the partner’s liability is limited to the amount that they have not paid up on their shares. While partners may set limits in their agreement, to which each partner is liable, in a legal sense every participating partner’s liability is unlimited. Partners can take part in every area.
In general, partners must consent to most decisions required in the management of the business. However, it is the partnership agreement that clearly outlines if there is a change to the legal position that all partners can take part in the management of a partnership business. Transfer of interest.
Partners cannot transfer their shares to anyone outside the partnership without the agreement of the other partners. The other partners may not wish to bring on the intended replacement, so they can veto the transfer of shares to anyone they are not happy with.

The Partnership Act is the Act which sets down the rules for partnerships which can only be varied by the partners drafting up a formal partnership agreement and including terms different from those set out in the Act. It is recommended that every partnership has a partnership agreement because of the specific needs of a particular partnership, which may not be covered suitably by the conditions and rules set out in the Act.

If the agreement is properly drafted, it can cover issues and set down how problems are to be resolved before they occur. This makes the partnership agreement an essential document in the business structure and makes the agreement a very valuable document in any partnership.

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By: Peter Viliamu

Why Business Partnerships Don’t Work

admin — Thu, 15 Oct 2009 23:56:09 +0000

Partnerships are typically formed due to a joint business idea or the need for financial aid with business start-up expense. Either way, only about 40 percent of partnerships work out and partnership dissolution is like a divorce–it’s really ugly.

You can only think and speak for yourself, you cannot for someone else. You can’t assume what someone else is thinking, so you can never speak for your partner. Therefore, there will be differences in your decision-making as a partnership.

If everything is going great with the business, there’s not a problem. But when things get difficult and there is a problem, everyone has their own interpretation of how to solve it and you are always going to have some type of a problem somewhere down the road in a functional business.

A silent partner, who is truly silent, will sometimes work out. But when people invest their money, they usually want to see where it’s going and where it’s coming in. They will eventually want some involvement, which can cause conflict between partners.

May partners develop their business without having a solid business plan, without having a partnership agreement, and without having an understanding upfront about how they’re going to deal with the business. Eventually, it starts falling apart and there’s nothing in writing. It’s hard to even write a partnership contract that will fully protect you and your business should the partnership fail.

A strong marital or family relationship makes for a better partnership because there is an existing bond deeper than any contract. They have a previously developed patience with each other and a nurturing relationship already established. In addition, most family business owners have invested “family” monies and share the work load equally. But even so, many family businesses close due to irresolvable conflict.

New businesses are often referred to as “your baby,” so try to imagine your new business as your first born child. You have dreams and hopes for them to have a happy and prosperous future. You want their lives to be smooth and headed down easy street. You also have a plan to give your child the best odds for this type of life. What if someone else, i.e. your partner, has a very different idea of how to raise “your baby?” Maybe you agree on the infancy of your business, but what about the later years of development, the “teen years?” Will your ideas on how to run the business be the same then?

There are many reasons business partnerships fail; too many to mention here. Statistically, the odds for sole proprietor business success are minimal; with a partner, even less. Try to avoid going into business with a partner. Being a boss is not easy. Being a boss and an owner isn’t easy either. But being an owner and having another owner tell you what to do is even more difficult. Don’t take partners unless you’re married to them, and that may not even be a good idea.

By: Carol Denbow