Sometimes we ask ourselves when we are running our business, does our business need a partnership? And is it important to really have a partner in our business? And there are some of us who ask what is a business partnership?
Let me explain to you what a business partnership is, it is a shared business venture, sharing both profits and losses. A business partnership can be formed by individuals/business entities between two parties. It can be an informal agreement.
Having a business partnership comes with its ups and downs and we will talk about it as we go along. So you can choose to either go it alone or decide to form a business partnership. It’s up to you.
PARTNER VS AFFILIATE
This the transactional relationship with an agency/company that does not have ownership stake in the company, but help drive business growth through a specific service or product.
An equity relationship that may both be transactional and strategic for business growth and sustainability.
So when you are thinking of business partnerships you can have an affiliate or just a partner.
Reasons for partnerships
Some of the reasons for having partnerships can be important when considering getting into one, let’s take a look at some of the reasons.
- It enhances your business credibility and image – The right business partnership will enhance the growth of the business and make the business stronger, provided better products and deliver more qualitative services to customers which will boost your brand.
- You gain access to new local markets.
- You get to expand into new global markets.
- You get a competitive advantage – Partnerships increase your lease of knowledge, expertise and resources available to make better products and reach a greater audience.
- It increases your customer base – Through a functional strategic partnership agreement, your business would grow its customer base.
- Long term stability – The goal for all business is to remain relevant for a long time and reach its set goals. Having a business partner can gain you access to knowledge, innovation, expertise and funds.
So before deciding on anything, if you have a team in your business and you are considering to have a business partner, it’s best you sit down with your team and discuss having a business partner coming into the business, it’s best to have your teams point of view when making such decisions for the business.
Although there are advantages to it there can also be disadvantages to having a business partnership.
It is important to pay particular attention to any possible disadvantages that may come along. Let’s take a look at some of them.
- Liabilities – To sharing profits and assets, a partnership also entails sharing any business losses, as well as responsibilities for any debts even if they are incurred by the other partner.
- Loss of Autonomy – In a partnership, you would now share control with a partner and important decisions would be jointly made. If you’ve worked on your own for a long time and are used to being independent, you may find it stressful when you can’t continue to do things your own way.
- Emotional issues – Conflicts can arise from differences of opinion or from unequal effort put into the business, especially when one partner is not pulling his/her weight. To avoid this, carefully choose who you partner with, look for someone who shares in your visions, values similar to yours.
- Future selling complications – A time may come when your partner wishes to sell the business and you are not in agreement with it. To avoid this you can include an exit strategy in the partnership agreement.
- Lack of stability – Even if you have a solid exit strategy in your partnership agreement, the change by a partner’s situations can cause instability in the business.
Steps needed to having a business partnership
- Analyze current business assessment
- Determine the goals
- Identify potential strategic partners
- The partner’s due diligence
- Your relationship development
- Structure equitable partnership
- Have a clear communication – role designations
- Know your value – negotiation
What you need to a business partnership
- A quantifiable reason for why you need a partner
- A good lawyer who knows how to structure partner agreements
- A good financial advisor who will provide financial guidance on structuring the agreement
- An exit strategy
- Updated will
- A succession plan
Some facts you should look into as well are:
Is your current partnership viable?
What is partner’s business history?
Will your partner sign a partnership agreement?
What level of experience does your partner have and is the allotted equity commensurate with their experience?
Do your fundamental value match?
Is there a high level of trust between the partners?
Is your partner solution focused?
Partnerships can bring great value if well structured
Details matter, work through the details and don’t make assumptions
Partnerships can pose great challenges if poorly structured
Risk business loos, poor health and valuable friendships