Business partnerships often start off with an informal agreement and little in the way of structure or ground rules. It’s always good to have a partner on board that you work well with. When things don’t go so well, however, this can lead to issues. You can end up clashing with your partner over key areas and disagreeing over the direction of the business. This can lead quickly to either you or your partner leaving the project, resulting in a lot of stress, wasted time, and lost investments.
Before setting up the business, you and your partner will need to think long and hard over some key areas. In this guide, we’ll show you exactly what you need to do when starting a business with a partner. You’ll learn the different things to look out for and how to avoid common mistakes. We’ll also be telling you how to avoid partners who may end up causing more issues than they’re worth.
1. Perform a Background Check on Your Potential Partner
Before starting your company, you’ll want to first check that your business partner is someone you can trust. Even if you’ve known each other for a long time, it can be a good idea to both agree to full background checks. Using a service such as checkpeople will give you an insight into the person. This can allow you to see if they’ve been truthful about their past jobs and education. It will also show whether they have a criminal record, something that can be a big problem for certain businesses. Once the background check is complete and you’re confident about your partner, you can progress to the next step.
2. Decide What You Want Out of the Commercial Partnership
Before you start any business, both you and your partner will have an idea of the goals and mission statement you want to set. It’s a good idea to discuss this in detail and in person as much as possible. You won’t necessarily agree on everything, but as long as you can compromise, both sides should be happy. If you’re disagreeing on too many points or find that your partner won’t budge on certain things, it may be time to end the partnership. Remember that the success of the business hinges on your relationship with your partner as much as anything.
3. Draft a Proper Agreement
Once you’ve agreed, it’s important to get it in writing. While you may have agreed to things verbally, it won’t mean much a few years down the line when your memories of those meetings have gotten hazy. Ideally, you’ll want to use a lawyer to draft the agreement and make sure it’s all legitimate. This may seem expensive, but it could cost you a lot more in the long term if you don’t get it done professionally. The agreement should list your shared vision for the business and other important details.
4. Decide Equity Ownership and Buy-Out Terms
While it may feel strange to start thinking about this before the business is even up and running, it’s important to make sure the points are clear and defined before anything gets started. Depending on the type of your business and any long-term goals, it’s good to decide the terms of a partner leaving before a certain amount of time. Think about whether this will affect their equity and also how a buy-out will happen. You should set an agreement that if a buy-out price can’t be agreed upon by you and your partner, an independent third party will determine the final valuation. If the payment of the full price isn’t possible, you can agree that the leaving party keeps some of their equity after leaving the business.
5. Meet Regularly with Your Partner
Your partner is vital in the day-to-day running of the business, and you’ll need to stay regularly updated to ensure you’re on the same page. As time goes by, your circumstances can change, and situations may arise that make it difficult for your partner to continue in the role. Make sure you’re always available to talk with and schedule regular meetings. Your meetings should involve the business’s state, ideas for the future, and ways current processes can improve.
