What should you do before entering into a business partnership?

Upfront disclaimer: This is not advice about the LEGAL formation of a business partnership. If you need your legal partnership agreement, please talk to an attorney.

This is about your day-to-day, month-to-month and year-to-year operations. This is about HOW you work together, how you resolve conflict, and what you each want to get out of the business both personally and financially.

Why do people look for business partners?

All kinds of reasons – everything from feelings of loneliness to needing a second person with a complimentary set of skills. For instance, one partner may feel weak on finances, but loves people and marketing. They may seek each other out to complete their business needs.

The good, the bad, and the mixed results from having a business partnership

Good – having a person to share the load.

Good – someone to communicate with and bounce ideas off of each other.

Good – two minds and two people’s funding can accelerate success.

Bad – you both need to get paid so you’ll need double the revenue.

Bad – You don’t get to make autonomous decisions.

The mixed – you have to communicate in a way that is healthy and productive. Communication is a good thing, but the lack of it is the core reason why business partnerships go south.

What is the success rate for business partnerships?

After eight years of being a business advisor and teacher, I have had a chance to see what makes for a strong and healthy business partnership. Estimates on the success of business partnerships are that anywhere from 50% to 70% of partnerships dissolve. I don’t say this to be defeatist. I say this because learning from the people who came before can help you avoid any pitfalls.

So why have a business partner at all?

I’ve walked many business owners through the pros and cons when they’ve brought up the possibility of finding a partner. And there are some strong upsides!

Lots of owners seek a partnership to double their start up capital. You can also leverage the knowledge of two people instead of one. Some business owners also like having a second person to share ideas with and bounce ideas off of. The best partnerships spark a lot of ideas and also share the process of making those ideas a reality.

There is strength in sharing a burden with a trusted partner. That one of you can step in if the other one is sick, on vacation, or needs a break.

But is a business partnership the best path forward for you?

A partnership is just that – partners sharing in the responsibility of owning a business. But it doesn’t mean that you can abdicate any one responsibility to your business.

For instance, if you need someone with a better handle on the financial side of your business. It would be tempting to have a business partner who could handle the financial side so that you can focus on what you do best.

That is completely understandable, but is that the job of a business partner? That might be the job of an accountant, a CPA, or even a bookkeeper depending on your level and your needs. As a business owner you are still responsible for the financial performance and management of your business. Regardless of whether you have a business partner or not.

Or let’s reverse it and say that you love the financial side of running a business, but hate being on social media, or coming up with email campaigns. Again, completely understandable. But is a business partner the right fit for your marketing plan, or do you need a marketing agency working for you?

In the best scenarios, business partners work together towards a shared goal.

In the worst scenarios, business partners don’t communicate their mutual goals to each other.

There are questions that all business partners should ask themselves and ask each other before heading too far down this path.

The start of a partnership is a good time to learn how you handle conflict. It is also the best time to define what success means to each of you and to your business. But even if you are years into a partnership, you can still sit down together and go through some core questions.

• Where do you agree – make a list. Where do you disagree – make a list.

• Are you in agreement of when and who you need to hire? Do you agree on the need for accounting and bookkeeping help, or on having social media management?

• Are you in agreement about who is in managing your intellectual property? What measures are you both willing to take to protect your intellectual property?

• How do each of you like to budget, and how will you decide together about big expenditures?

• How do each of you envision your brand identity?

• Why you need routine check ins as partners.

How often should business partners check in with each other

All business partnerships need to sit down once a quarter to check in. This should go beyond having a list of tasks that each of you should take care of. Partners should also develop a system for more frequent check ins regarding their weekly and monthly tasks and set themselves up for an accountability system.

For the quarterly check ins, I recommend that that you use your time time to review your goals. Make note of any roadblocks to your goals. Review the business financial performance and look ahead to the coming months.

And not to get too woo woo, but check in with each other about how you feel (yup, feelings matter!) about of the business. Be honest in this process – a successful partnership ensures that you are both on the same page about what success means for the business.

The business partnerships that I have seen succeed are the ones that have transparency

The successful business partners are also on the same page about what constitutes success. The see eye to eye on the big plans for their business and share a desire to work towards big goals together. They can handle conflict when it arises, they communicate, they are transparent, and supportive.

And transparency can and should be at the top. Be clear about when and how you spend money. Be clear about when you need to take a break. Be clear about your expectations for the quality of work being done.

If you’ve been thinking about taking on a partner, or if you already have a partnership, take some time to work through this list of questions and remember to check in with each other.

• How do you like to communicate? Are you diplomatic, or straightforward?

• What are your business values and what are your personal values?

• Are you both willing to document your steps, your goals, your projections, and your outcomes?

• What are your goals for this business – profit, growth, prestige, sustainability, positioning?

• Have you set up quarterly check ins? If so, what do you discuss and how do you determine your agenda?

• How will you make hiring and firing decisions?

• Who else do you need to hire or outsource to in your business?

• What are your financial expectations from the business (profit, salaries, etc.)?

• If one partner wants to exit sooner than the legal agreement states, what plans would you need to have in place?

• What is your approach to budgeting? How transparent can you be about past and current debt, money mindset and budgeting?

• If the partnership is coming from an existing relationship (family/relatives, romantic partnership, friendship), how will you set boundaries to preserve the personal relationship?

• What are your individual approaches to risk?

• How is your relationship with transparency? Do you have boundaries around what you share and when? Would those boundaries interfere with any of your business goals or business communications?

• Passion is important, but how do you approach making a plan and sticking to it?

• Have you done a SWOT for your skills and goals?

Even if you already have a business partner, going through these questions as a team can help strengthen your partnership.

Have even more questions than this? Post it in the comments!