The Pros and Cons of Business Partnerships

by | Small Business Consulting

A business partnership can be a great thing. It can help an individual achieve more than he would have alone. A partnership can leverage strengths, hide weaknesses and prove that – sometimes – the whole really is greater than the sum of the parts.

The right partnership, where the energy and chemistry are absolutely perfect, might even change the world. There’s Bill Gates and Paul Allen. Bill Hewlett and David Packard. Steve Wozniak and Steve Jobs. John Lennon and Paul McCartney.

But a partnership is not always the right option for you or your company. Aside from the legalities involved, serious consideration should be given to a number of other issues before you take the partnership plunge.

The Good News

There are plenty of benefits to a partnership arrangement. Some are readily apparent, others less obvious. The specifics will vary depending on the type of industry you’re in and the role each partner will play in the company. Potential “upsides” of a partnership include:

  • Differing, complementary skills brought to the company by different partners. If you’re great in operations or service development, but couldn’t sell water in the dessert, a sales-oriented partner might be what you need.
  • Sharing of Ideas. Sometimes two heads really are better than one. A partner with a knack for “out of the box” thinking can be a great asset.
  • Divided risk. When running a company, you face the risk/reward equation every day you’re at the office. Should things go wrong, either in the short term, or if the business just doesn’t work out, having a partner can help limit your personal exposure.
  • More contacts. By bringing on a partner, you acquire a new network of contacts. This is especially valuable in service-oriented businesses, where there are diverse, fragmented customer categories.
  • More discretionary time. Having a committed partner available to “mind the store” while you’re tending to other interests can be a great stress manager. Be sure to return the favor whenever possible.
  • Support and motivation. At risk of swerving into touchy-feely territory, let’s admit that being in business can be emotionally and physically draining. Having a partner to lean on occasionally can help you navigate through the tough times. On the flip-side, knowing someone else is depending on you can keep you motivated and focused when you otherwise might be tempted to coast.

On the Other Hand…

You knew this was coming. Partnerships carry their own potential problems. Here are some issues you need to consider:

  • Shared profits. Presumably, a partnership involves some split of the company’s profits. (It doesn’t have to be 50-50, though.) In any case, make sure you’re willing to honor the sharing agreement, which you should have in writing.
  • Shared liabilities. Normally, partners in a general partnership are jointly – and individually – liable for the business actions of the company. Should your partner disappear, you become responsible for all the company’s obligations, debts, contracts and agreements, not just “your half.”
  • Partner fatigue. Being in a partnership is often compared to being married. In fact, you may end up spending as much time around your partner as you do your spouse. If that kind of constant interaction doesn’t feel right to you, you may want to consider a different arrangement.
  • Democracy in action. Being a partner means saying goodbye to total, unilateral control over your company. Decisions, large and small, are shared, or at least assigned or delegated by mutual agreement. Make sure your ego can handle disagreements, and have systems in place for resolving serious conflicts.

A Bottom Line Decision

Do you really need a partner? Would bringing in a partner really help your business grow? This is a case where 1 + 1 had better equal at least 3. That is, the synergies of the partnership should leave your business significantly better off financially than it was before the arrangement.

You can always investigate other options before committing to a partnership agreement. Strategic alliances, project-based arrangements, and joint ventures can bring many benefits of partnering without the long-term obligations.

In any case, you’re probably wise to test drive through a few medium-priority projects and tasks before negotiating with your potential partner, just to see how you work together. If you do move forward, find a competent lawyer with extensive experience in partnership agreements to draw up the paperwork. Make sure issues like compensation, profit sharing, and buy-outs are clearly addressed.

However your business is structured, MP Star Financial’s invoice factoring services can help make your cash flow more predictable, enabling you to meet your company’s obligations on a timely basis. Call MP Star Financial for more information at (800) 833-3765, ext. 150.

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