Last week, I talked about The ONE test ALL outsourced contractors need to pass before you hire them. I shared with you the “A Player Guarantee Test” and in my experience, it virtually guarantees that a contractor is the right fit for the job.
Today, I want to talk to you about how to select business partners for your service-based business. Have you ever thought about getting a business partner to help you start or grow a business?
It’s a tempting proposition, but there might also be problems along the way. Bringing on a business partner to help you start or grow a business isn’t all fun and games. It’s less of a friendship, and more akin to a marriage.
You have to choose “the one.”
You need to know them well.
You need to do your due diligence before you decide to go into a business partnership with someone else.
In this week’s video and post, I’ll share with you some key considerations on how to select business partners for your service-based business.
Expanded Video Transcription
So one of the questions I receive from many freelancers, consultants, and agency owners is, “Should I bring in a business partner into my business? If so, how do I do it?”
Difference between an affiliate and a business partner
Now the first question you need to consider is what type of person are you looking to help you in your business. Are you looking for an affiliate or an actual business partner?
An affiliate is somebody who might be a commission salesperson or somebody who’s bringing in new business for you, but you’re not giving them equity in your company. You might give them a share of the revenue or profits, but they are not an equity partner in your business.
In contrast, an equity business partner is somebody who receives shares in your company, and who has some level of decision-making ability in the direction of the company, and it’s management.
Be clear on what type of partner you’re looking for in your business.
Partners can be great for business accountability, but it’s not always necessary
Whether you need a partner depends on the company you’ve built so far, the skills that you have in place, and any business function gaps that a potential business partner can take over better than you can. If a business partner can take something off of your plate, you can grow more than you would otherwise. You may find it is worthwhile to give up equity in return for growing your business.
Five considerations for a successful partnership
Make sure you answer these five questions before considering someone as a business partner.
- Is your potential business partner critical to your success?
- Does your business partner have complementary skills to yours that will increase the value of your business?
- Who has control of the business? Do you maintain control of the company or does that person have equal power?
- Do your personalities mesh with each other? Could you picture this person being in your life even more than your significant other every single day of your life moving forward?
- Do you think that your business partner’s personality will get on your nerves or is it one that you can grow with and do well with?
9 questions to ask before entering a business partnership
Here are some more precautions you should take before beginning a business partnership:
- How many partners are you ultimately going to have in the business?
- Who owns what percentage of the business?
- Who has decision-making power?
- Are you going to form a board of directors?
- Do you have shared values, ideas, and goals?
- What are your thoughts on family and business, as well as things like nepotism? Are you okay with allowing family working in the business or is that something that’s against the rules in your company? (You need to decide that early-on, otherwise it could be a tension point later on in the business.)
- Do you feel the same way about how this business should run, and the decisions that you’re making?
- Are you on the same moral plane or does this person not have the same ethics that you do?
- What are you going to do in the occurrence of a life event, or even death of a partner?
For the last item on the list, I know it’s something that nobody wants to think about when they’re starting a business. But you always need an exit strategy, a plan for getting a partner out of the business in the event something bad happens. You really do need to plan for the exit of your business even when you’re getting started. Make sure you have an ironclad partnership agreement with your business partner before you do anything else together.
Responsibilities and roles for each business partner
Finally, make sure you understand the roles and responsibilities of each business partner. For example in financial reporting requirements, which business partner is required for reporting what? Who’s responsible for what parts of revenue, profits, and expenses?
How are you going to handle conflict resolution? Who gets the final say if you don’t agree with something?
Usually when it’s a 50/50 partnership, decision making is going to be tough, because one person has to be the odd one out. Most alpha-personalities are not going to feel very good about not getting their way. Be sure to map out how you will handle conflicts and who has the ultimate decision-making power for the business?
All these questions might seem trivial, but it’s imperative to understand these things before you get into a business partnership. Because once they are your legal business partner, it’s hard to make changes to the agreement. Make sure you’ve addressed these considerations early and often in your process.
Also, plan around the exiting of the business and make sure you have a buy and sell agreement in place for the shares of your company.
Summary
- Understand the risk of bringing on a partner.
- Define what happens in the case of death or disability of another member of the partnership.
- Plan for the end at the beginning of your business partnership.
Owning a business with somebody else is like a marriage. It’s not something that you should be taking lightly. Eve though it can have significant benefits, you want to make sure that you’re looking for a partner that you can spend the rest of your business life with.
Make sure you’ve worked together with your potential business partner long enough or you’ve seen enough from each other that you know how it’s going. Or at the very least, make sure you maintain the control over your business if you’re the one who started the business.
Make sure you have decision-making power, because if you are leading the direction of the company, you’re going to want to make sure you have full autonomy over decisions.
Do you have business partners? What are your tips on how to select business partners? Mistakes to avoid?
Let us know by leaving a comment.
This post and video was episode 69 in our 90 Day Challenge digital marketing series.
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