Selecting the right business partners is absolutely essential
A recent article published in the Harvard Business Review posed the following question in the context of running a business: "Who can you Trust?" According to the article, success in business often requires a willingness to put trust and faith in your business associates. However, when your money and resources are on the line, the trick is to know who you can put your confidence and trust in. Unfortunately, there are no foolproof guidelines by which we can judge who is trustworthy. Quite often, trusting your gut instinct works about as well as anything else when it comes to selecting business associates.
Many Californians who decide to start a business together form a partnership. Selecting good business partners, although no easy task, is absolutely critical to the success of a business. Entrepreneur magazine analogizes business partnerships to marriages. Unfortunately, like far too many marriages today, a business partnership often begins with enthusiasm and high expectations "only to end in acrimony and legal proceedings." What often serves to bring partnerships down are disputes among partners which center on issues of trust, control and money.
There are certain advantages to going into business with partners. According to Money Crashers, some of the advantages of working with business partners are: (1) more manpower to handle the day-to-day business chores; (2) having a diversity of skills available to the business; and (3) having different perspectives to allow a better evaluation of ideas and concerns. In addition, having partners with connections gives a business the opportunity to multiply its potential customers and investors.
While having business partners that you can take to the trenches can help you meet business challenges, Inc. magazine notes that partnerships have definite drawbacks as well. The biggest drawback is that each partner will be jointly and severally liable for the debts and obligations of the business. Also, bear in mind that there is no assurance that you will ever get back any assets that you contribute to a partnership. Finally, the possibility exists that strong disagreements among partners could arise for a variety of reasons. If disagreements evolve into disputes, the continuation of the business could be threatened.
Although there is no foolproof way to screen out all potentially bad partners, Entrepreneur magazine offers the following tips which may help you select good partners in order to give your business a fighting chance:
- Select a partner who can bring some useful and important skill set to the table whether it is financial resources or business connections.
- Try to determine whether your prospective partners' commitment to the business-in both time and money-matches your expectations.
- Ascertain whether the prospective partners have distractions which might ultimately make the business a secondary interest to them.
- Make sure you know something about your prospective partners' financial situations.
- Talk to former business associates or employees to see what the potential partners were like to work with or for.
- Determine whether the prospective partners are willing to put all tentative agreements in writing in the form of a partnership agreement. If not, this could be a sign of trouble in the future.
- Always keep in mind that choosing a bad partner could affect your livelihood, your reputation and your personal finances.
Seek legal advice
Those who are thinking about going into business as partners should contact a California attorney experienced in handling business formations. The attorney can draft a comprehensive partnership agreement that protects each partner's financial stake in the business to the degree possible.