Starting a new business can be an exciting time, laden with opportunity and risk. For many small business owners, starting (or expanding) a business with a partner can offer significant advantages, from the ability to raise additional capital to new and complementary business skills. But business partnerships can pose their own challenges, so it's important to understand the factors entrepreneurs should consider when evaluating a potential partner.
As the Covid-19 recession exposes more small business owners to the possibility of bankruptcy or other financial stresses, doing your due diligence when selecting a business partner is more important than ever.
Ideally, a business partner brings a host of resources, skills and talents to your enterprise that enhance your venture's chances of success. But it's important to acknowledge that adding partners to your venture can add complexity that may be challenging. That's why it's essential to clarify expectations, roles, and contributions, ideally contractually.
The Small Business Administration offers a wealth of support for entrepreneurs in navigating business partnership.
While a "handshake" agreement can suffice in many instances, it can be prudent to formalize your partnership agreement in the event of any disputes or unforeseen events. It is also helpful for tax clarity, since each partner must report their share of business income or loss on their personal tax returns.
When evaluating a potential business partner, consider these professional attributes:
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How you divide responsibility in a business partnership is a bit more complicated than it sounds, especially if you enter into a formal partnership agreement. Considerations include:
Of course, personal chemistry and friendship can and should play a role in partner selection, but they shouldn't be the sole – or even principal factors – in your selection, according to the Harvard Business Review. That's because your venture's operations rely on much more than amicable relationships for success, and choosing a partner that adds value and essential skills to your business can boost your chances. Plus, the dynamics of a friendship can create emotional reactions that can impact decisions that should be guided by reason. Keeping the focus solely on your business can help you forge relationships that can strengthen your position in the marketplace.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.