5 Ways to Create a Winning Business Partnership and Agreement

Business partnerships
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According to the Small Business Administration (SBA), over 70 percent of all small businesses are sole proprietors. Despite the numbers, greater rewards may result if you form a business partnership with an individual who complements you both personally and professionally. Partnerships offer more freedom for the owners to take time off and afford partners the opportunity to share tasks. With two people running the show, there's also the potential to earn greater profits. To ensure that your partnership runs like a well-oiled machine, consider the following before you form a business partnership:

Have the Same Vision

For a partnership to be successful, all parties involved must agree on the same strategic direction for the company. If one partner wants to build a well-known national chain of retail outlets and the other partner only cares about earning a decent living, the business is destined to fail. Set a clear agreed upon course for the business that meets the needs of both partners.

Define Business Roles

A winning business partnership capitalizes on the strengths and skills of each partner. Divide business roles according to each individual's strengths. For example, if one partner is strong in marketing, operations, and finance and the other partner excels in sales, human resources and leadership then split tasks accordingly.

Avoid the 50-50 Split

It may seem logical and fair to split the ownership into two parts. However, this kind of 50-50 split can impair decision making. Instead of stalemating decisions when you can't meet consensus, consider a 49 percent to 51 percent split. If this is not possible, then consider using an outside board to weight in on big-ticket disagreements. This will prevent your company from being deadlocked on decisions.

Hold a Monthly Partners Meeting

A strong business partnership is built on open communication. Meet on a monthly basis so you can share grievances, review roles, provide constructive criticism, and discuss future plans for the growth of your business.

Create a Partnership Agreement

It is simple to set up a partnership because no legal documents are needed. Partnerships are often an oral agreement between two or more parties but oral agreements can present problems down the road. Instead, avoid potential problems by drawing up a legal partnership agreement.

You might be asking yourself what you should cover in a sound business partnership agreement. According to the Small Business Administration(SBA), the agreement should include the following:

  • Amount of equity invested by each partner
  • The type of business
  • How profits and loss will be shared
  • Partners pay and other compensation such as bonuses
  • Distribution of assets upon dissolution of the business
  • Provisions for changes to the partnership or provisions for dissolving the partnership
  • Parameters of a dispute settlement clause
  • Settlement of the business in case of death or incapacitation
  • Restrictions regarding authority and expenditures
  • Expected length of the partnership

It's always worth considering a business partnership structure when you find someone who complements your skill set and you know will add value to your company. These partnerships can be enjoyable and lucrative if the right foundation is cemented in the beginning.