Grit, determination and the right amount of funding aren’t all that it takes to successfully go into business with someone. No matter how solid your partnership may seem at the outset, you need to nut out a few basic legal agreements before you start operating a business together.
This month we asked business owners what they wish they’d done before partnering – and their answers all revolved around one thing: Partnership agreements
1. Detailed Job Descriptions
You wouldn’t start a new job without a clear outline of what your responsibilities are going to be, and entering into a business partnership is no different.
The number one thing the business owners we polled said they wish they’d done differently was creating a partnership agreement with specific job descriptions and KPIs.
From angel investors with no hands-on responsibilities to partners using their skills in the day-to-day operation of the business, all parties must have a clear understanding of what’s expected of them from the outset and what will happen if they fail to meet their obligations.
2. Mandatory Background Checks
Knowing who you’re going into business with is said to be more important than knowing who you’re marrying – especially if you’re a general partner with unlimited liability!
The business world is littered with people who didn’t realise the type of person they were partnering with until it was too late. Including a stipulation that requires partners to undergo police, background and credit history checks is a simple way to lower your chances of being taken for a ride.
3. Exit Strategy
People new to the business world have a bad habit of viewing an exit strategy as a sort of prenup – if we create one, we’re just setting ourselves up for failure. However, in reality, there are many reasons why someone might want to exit the partnership, and they have nothing to do with failure! Families can grow or fall apart, new opportunities in different cities and countries present themselves, health changes, and sometimes business just isn’t what one of the partners expected it to be.
It’s crucial for all partners to understand and agree to a set of rules governing how the partnership may be dissolved including:
- How partners can retire
- What the business will do in the event of a death, permanent injury, bankruptcy or divorce of a partner, and;
- How a partner that doesn’t tow the line can be expelled
If you need a partnership agreement drawn up or simply want more advice on business structures and partnerships, contact Phoenix Law & Associates on (07) 3180 0908 for a confidential discussion, or email us at firstname.lastname@example.org.