4 Critical Issues To Consider Before Getting Into A Partnership

As a small business person, many are the times that you will opt for a partnership due to financial constraints or the feeling that you will succeed when partnered with someone.

There are partnerships that started small and have amassed a level of success that could not be envisioned, an example is SAROVA Group. Even with the success stories, the weight on the other side of the lever is quite huge too, and am hoping the following tips can help each one of you know what to consider when getting into a partnership.

1. Friends
The issue of friends in business has varied opinions. One thing that is a fact though is that some friends are not the type that you can get into a business with. A partnership with a friend becomes a success if it is made up of three or more people and not all the three are close friends. One person eventually has to act as a checkpoint. Going into business with friends has the disadvantage whereby issues cannot be faced head-on due to the need to protect the friendship.

2. Knowing what you are doing
There are times that as entrepreneurs we’re easily convinced to accept getting into a partnership without careful consideration of what the business entails. Someone will promise that they know the business and will guarantee you profits and at times due to the social pressure or need for justification, we agree. Later on is when we realize we know nothing about the business and how it operates. Make sure you know the line of business you are committing your gold to. Remember your gold has to be protected at all times.

3. Defining Roles
In a partnership, more often than not, one partner’s expertise or commitment may be misused by another. This may breed resentment and eventual conflicts that could lead to the collapse of the partnership. It is important that all the roles of each partner be defined right from the onset and each partner agree to them as is required by the partnership agreement. As a partner, never be afraid of pointing out a problem when your partner shows some slack. Be sure to evaluate the situation carefully first.

4. Finances
Finances run a business, without proper financial management practices, a business is guaranteed to fail. In partnerships, finances take the following course;

a) Capital

The amount contributed by each partner should be made open right from the start and their ownership percentage of the business and eventual share of profits and losses.

b) Salaries

Just like any other form of entrepreneurship, I also encourage payment of salaries to partners in a partnership. The salaries should however not be based on capital investment but on the role played by each partner in the business. If one partner does more than the other in actively running the business, then their salary should be higher regardless of their capital investment. Salaries and the share of profits and losses should be understood to be different aspects of the business.

c) Signatories to Business Accounts

Each business should have a business account. The account in a partnership should be operated in a specified way that each partner agrees to. A partnership account should have at least two signatories who report to other partners on any transactions made via the account.

d) Reconciling Books

In a partnership, one partner may at times be forced to use their own money to meet some business needs. All these need to be reconciled with the books of account each time and should not be assumed to be an investment in the business.

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