Starting a business is challenging, and some people think that bringing on a partner will ease the stress and work. Although a partnership can be an advantageous business decision, it may not always be the right choice.
Before jumping into a shared business, entrepreneurs should research the pros and cons. If they decide on establishing a partnership, they should make sure to set up the arrangement correctly from the start.
Advantages and disadvantages of partnerships
According to Business News Daily, a partnership can be beneficial but is not for everyone. Some advantages of forming a partnership include:
- Sharing of capital and financial burden
- Improved productivity and efficiency
- Well-rounded expertise and knowledge
- Tax benefits
There are also disadvantages of sharing a business with someone else. While partners split the financial burdens, they each get a lower percentage of the business’s profits. There is also an increased risk of conflict, especially for partners who approach things differently. There may also be liability factors to consider.
All partnerships should have a written legal agreement that outlines all terms of the partnership to avoid trouble in the future.
How to build a successful partnership
Whether you are taking on an individual or another company to partner with, Inc.com offers some advice to make sure the partnership will be as successful and conflict-free as possible. One of the main reasons that partnerships fail is due to competition between the two parties. Partners can avoid this by making sure to assign well-defined and clear roles for each owner. There should also be clear expectations for each partner’s responsibilities and the goals of the company.
Partners should agree from the start to be honest and transparent with each other throughout the process. They should communicate frequently before starting the business as well as during day-to-day operations. Partners should also discuss exit strategies in the event one partner wants out, or if the business gets an offer for a buyout.