Starting a business is hard work, and understandably, you need a helping hand in terms of financial resources and skills. Getting into a business partnership can make all the difference.
However, as a business grows, challenges come with the territory, and so do disagreements. It is common for different partners to see things from different perspectives, but unresolved conflicts often result in lower work efficiency and even the failure of a business.
How can you find perfect matches for your business? How can you foster a strong and sustainable partnership? Luck matters, but it’s more about mutual commitment, respect, and accountability.
1. Put everything in writing
It’s better to be safe than sorry to be prepared for any potential hiccups by having involved parties sign a written partnership agreement. You can refer to this legal document to reasonably resolve any dispute between your business partners along the line.
When it comes to capital contribution, for example, having a formal agreement with transparent terms and conditions will make it easier to distribute profits, or losses, to your shareholders. This agreement proves to be even more necessary if you are partnering up with your friends or relatives.
2. Keep an open communication
Disagreements are unavoidable in a business partnership. However, you can minimize the risk by keeping an open line of communication with your partners.
For example, when the business goes awry or when a conflict arises, all partners should openly discuss the problem together and remind each other of what set them on the partnership journey in the first place.
Should a partner decide to leave the business due to unsolved disputes, timely conversations about the dissolution will help to ease the handover process and thereby protect your business and the other partners.
3. Distribute power and benefits based on each individual’s contribution
In the case of a partnership business, power and benefits must be distributed reasonably among its owners. Worry not, as some basic principles of capital contribution might come in handy.
Specifically, a partner should contribute more capital and possess a higher ownership percentage than the other(s), so the partner will have final authority in decision-making while putting mutual benefits at the forefront.
You can allocate power and benefits to your partners based on their contribution to the business. In reality, there are two forms of capital contribution that you should take into consideration.
Capital contribution with assets
Contributed capital can be tangible assets, namely cash or non-cash assets, which must be legally transferable in civil transactions.
It also includes intangible assets such as intellectual properties (including a shareholder’s logo or trademark) and usufruct (which allows you to use and benefit from an asset that another partner owns).
Capital contribution with human capital
Some people will join a partnership by contributing their human capital as they know that no one is good at everything.
They can serve on the leadership board to give advice and strategies or perform daily duties within their expertise, such as those in finance, marketing, or design.
This form of capital contribution facilitates flexibility as a partner can act as a shareholder while taking good care of other tasks, which is more likely to increase the company’s productivity and profitability.
Understandably, this option is highly preferred by many senior executives. On the other hand, it also benefits young startups as they can get a helping hand from experts, especially when they need more funding to hire senior employees for important positions.
However, there is an observable downside. It is challenging to calculate the contribution percentage and identify how much profit the partner will receive accordingly because human capital is intangible and unquantifiable as opposed to cash or other assets.
The good news is that you can directly discuss with each partner to develop a specific agreement instead of a one-size-fits-all template. Remember to have a written agreement signed by both parties.
4. Find the right partner instead of a good one
Humans remain the most crucial factor in every business, but more often than not, their emotions rule when making critical decisions.
Therefore, it is helpful to take the time to know a potential partner by observing and interacting with them at work and in life before partnering up.
You can choose a business partner following these criteria:
- A person with experience and networks
- A person with idle money
- A person with expertise
But above all, you should find a partner who speaks the same language as you.
Excellence matters less than compatibility. The right partner should be on the same page with you regarding business goals and visions from the start so your partnership can last and drive the business into the future. Also, their personality and character can be considered as an additional criterion.
5. Do your share of the work
Mutual respect is always at the forefront of a partnership, and each partner should avoid interfering with the other’s work.
A partnership business with many owners will unavoidably fall into disagreement and conflict from time to time. However, you can proactively minimize the risk by having a partner take the lead in an area of their strength. Thereby, when the person in charge has the final say on a decision, they will have the full respect and trust of the others.
Conclusion
Getting into a business partnership offers an opportunity to learn from other partners in many different ways. As the old saying goes, “If you want to go far, go together.” A solid partnership can steer your business into the future with more achievements. Also, shared success will feel way more exciting and rewarding.