I get many questions about business partnerships. Unfortunately, they’re after the business has already been started and trouble has occurred!
Are you thinking of starting your house cleaning business with a partner? There are many things to consider before going ahead with this idea.
First of all, who is the person you are considering as a partner? Is it:
- A friend
- A relative
- An acquaintance
- Another business owner
The old saying “never mix business and pleasure” comes to mind here. That’s because any time money is involved in a relationship, there is the chance of the relationship getting affected. Think about how hard it is to keep your emotions separate from good business logic. Unless you’re an experienced business builder, I strongly advise against starting your business with a partner.
But that’s just me. Before you make any decision, look into forming a business entity that will protect both of you. And consider why you are becoming partners.
Valid Reasons to Work with a Business Partner
The best business partners will work to each others strengths and weaknesses.
For example, if you are not good at procedures and organizing, you would benefit by having a partner who excels in those areas. The business would benefit by having each of you work with your strengths, preventing little skirmishes around common issues.
Reasons NOT to Work with a Business Partner
If your only reason for having a business partner is to help with the initial investment, then this is not a good enough reason to bring him/her into the business. Instead, consider this person as an investor and work up a solid investment agreement.
You’ll want to get advice from a good legal source or invest in the appropriate legal form to put the agreement together. You don’t want to get stuck in a situation where the business does not succeed and you are left owing a large amount of money.
Savvy business investors know that an investment in a business is a risk and they could lose their money. And the new business should be aware that an investment is paid back based on the terms of the agreement. Therefore:
- What interest rate will be paid on the money?
- When will the business start paying on the loan?
- What is the relationship once the loan is paid?
- What constitutes a business failure?
You also don’t want to select a business partner based on doing the cleaning. You can hire a worker to help you with the cleaning to get the business up and running. Working as a team is much easier than working alone, but this should not be used as the basis for forming a partnership.
Things to Avoid in a Partnership
1. Never Share Your Capital – Instead, share your expenses. Any time you bring money into a business, it needs to be protected no matter how honest you think you and your partner are. When things start to go sideways, money ownership is the first to cause additional issues. Instead, share the expenses equitably and keep your capital in a safe place.
2. Working Without a Signed Agreement – Everyone starts out honest in a business venture and usually has the best of intentions. What you should be concerned about is planing for the worst. The only way to do this is with a signed agreement that details every obligation. The best way to do this is with a written legal agreement drafted by a qualified attorney agreed upon by both parties. You could also form a limited partnership where the limited partner is not liable for the actions or obligations of the general partner.
3. Not Having an Exit Strategy – When a marriage ends, the partners rely on a pre-nupital agreement. In a business partnership, this is referred to as an exit strategy that defines the terms for both of you to walk away from the partnership. This often includes options for one person to buy out the other.
4. A 50/50 Partnership – A business cannot success with two bosses. Instead, form the partnership with a 70/30 or 60/40 split. This provides the business with a person who is responsible for accountability and operational control.
5. Expecting a Friendship to Outlast a Partnership – This is one of the major issues most people don’t consider before starting a partnership. They make the erroneous assumption that a great friendship will make a great partnership. Nothing could be further from the truth. In the business world it’s always business first and friendship second.
Making the Decision
Many relationships have gone bad due to a disagreement in business. For more in-depth information on business partnerships, “Partnership or Partnersh*t” is about relationships and why those people issues are more important to plan than the business itself. People issues are much more critical than anyone can imagine. I highly recommend this book before you start or quit a business partnership.
As you can see, there are many things to consider before you actually start your business with a partner. Make sure it’s the right decision before you get started!
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Featured photo by Christina @ wocintechchat.com on Unsplash
