Starting a business with a friend can lead to a strong partnership where each person contributes their own unique skills and knowledge creating the perfect combination for a successful business. This balance is what made your friendship so strong in the first place, right? Unfortunately, many of these inspired partnerships don’t end in success. Why do these partnerships fail? Often it has little to do with the quality of the service or product provided by the business and more about a failure in communicating expectations between the partners. Thus, today I will write a little on my version of Partnerships 101.
One of the things that I love most about this country is its entrepreneurial spirit. Nearly every week, I get to meet enthusiastic and driven people who are dreaming up their next big thing. And often, this is a partnership whose partners are ready to formalize their plans and launch their company. The excitement and energy is inspiring, but it needs to be reigned in for a bit so that the partners make sure they are on the same page before they press the “Go” button. A partnership agreement is a simple document that the partners can use to communicate their expectations. What does every partnership need to decide before getting started? Here are a few things:
- Partnership first, company second. Your company will only be a success if you remember that you and your partner are a team. The team must be strong before the company can be successful. The partnership is the very foundation of your company. Make sure it is a strong one.
- What is your company’s timeline? Draft a simple statement defining what the partnership hopes to accomplish in three months, one year and five years. This process can help determine whether you and your partner are in it for the long haul or not. For example, is your goal to build a brand and sell it within a year, or is it to create a company that can be handed down to the next generation?
- Identify the “what ifs.” What happens if you or your partner want to dissolve the partnership? Get married? Divorce? Want to be paid twice as much? What if your business shows a profit? A loss?
- Nail down the details regarding money now. Yes, you must talk about money now. Start talking about compensation before you launch your business to make sure expectations are clear.
- Start drafting a partnership agreement. Use a template, hire an attorney or use a legal services website to work out a partnership agreement. Use the topics described above to help drive the discussion. Focus on content first and format later.
So invite your friend and soon to be business partner out for coffee, get out a pad of paper, and start talking!
And, as with all legal documents, be sure to get a final review by an attorney to make sure your partnership agreement has the necessary clauses required by the state you will do business in.