Business partnerships have been integral to many startup and entrepreneurship success stories, such as those of prominent investors such as Kohlberg, Kravis Roberts, and Hewlett-Packard. Many factors go into making a successful business partnership, such as complementary skills and equipment, the idea that one person can create synergy with another, and the need for both to profit from their venture.
Although starting a business partnership is a great idea, it’s not always the best way for an entrepreneur to get started.
The main challenge that entrepreneurs face when it comes to forming a business partnership is the fact that it’s similar to a marriage. In addition to money, the partnership also has to deal with various other issues, such as stress, ego, and day-to-day expenses. Having a good idea of the work involved in a successful partnership can help prevent potential problems. Here are some mistakes to avoid when in a business partnership.
- Shared Capital
One of the most prominent concerns entrepreneurs have when forming a partnership is the idea that they will give away their enterprise ability if they share their capital. In a perfect world, everyone would be full of integrity and would not run away with their gifts. However, in the real world, things can go wrong. One of the best ways to avoid this is to establish an arrangement where both parties share expenses. This will allow them to avoid potential issues and make it easier to walk away if they don’t perform well.
- Partnering Due To Money
The concept of a partnership is also a common mistake many entrepreneurs make. After Bob has a great idea and Fred has the necessary skills to run a successful business, they decide to share the profits, expenses, and duties. Unfortunately, both end up working against each other, which means that Bob is liable for Fred’s financial obligations. If you have a great idea requiring someone else’s skills, hire them or work out an agreement allowing both parties to operate independently.
- Lack of Agreement
The concept of a partnership is essential that the parties agree on every detail of the agreement. A written legal agreement is the best way to ensure all details are documented. Make sure that the attorney you hire is well-versed in the law and has the necessary skills to deal with the various issues of forming a partnership.
- Not Looking Into A Limited Partnership
One of the most significant issues with forming a partnership is the assumption of liability on the part of both partners. This is why a limited partnership can be a great alternative to a traditional partnership. This type of arrangement allows the limited partner to avoid being held liable for the general partner’s actions.
- Not Having An Exit Strategy
A prenuptial agreement is the first step in a big-time marriage. In contractual and business terms, it’s similar to an exit agreement. In a partnership agreement, the terms of an exit strategy are clearly defined and can be easily implemented. This type of arrangement can be done without affecting the business’s operations.
- Wanting Friendship to Outlive Partnership Breakup
From a marriage perspective, how many people do you know who are genuinely friends after a couple of years of marriage? If you’re planning on forming a partnership with a friend you’re not sure you’ll be friends with after a couple of years, don’t expect to be friends after the partnership ends. In the business world, it’s important to remember that the priority is the business and the relationships.