Starting a business with a partner can be fun and supportive. You have someone else to work and strategize with and can complement each other’s strengths. With the right partner, your small business partnership benefits from two dedicated owners with unique skill sets.
However, any business with several owners can also be complicated. The steps below give you essential advice to start a business with a partner and maximize the benefits.
Essential Tips When Starting a Business with a Partner
Starting a business with a partner can give you extra motivation and support for success. It can help ensure balanced decision-making and add complementary management styles. Here is what you should consider to find the right partner and lay out the parameters for success.
1. Find the Right Partner
The right partner as a business owner is someone you trust and can work well with. You’ll want to seek someone with strong communication skills to avoid misunderstandings. Ideally, your partner will have complementary skills or management styles to you to gain the benefit of differing strengths and a different perspective.
2. Clearly Define Roles and Responsibilities
Communication is key in any partnership. Before jumping in, clearly define roles and responsibilities to maximize success. In partnerships, a lot of frustration can come from unexpressed expectations or assumptions. For that reason, defining who will do what and how you’ll work together can reduce conflict.
3. Decide on a Business Structure
Common business structures are a partnership, multi-member limited liability company (LLC), or corporation. Decide which structure makes the most sense for your company based on current needs and future expansion goals. For many small businesses, this can be a limited liability company, but if you want to expand and go public later, a corporation may make more sense.
You might choose a limited liability partnership, partnership vs. LLC, a married couple LLC, or even a foreign partner in an LLC. Once you’ve decided on the entity, you have to register it with the Secretary of State, get an employer identification number (EIN), and open a business bank account to prepare to do business.
4. Create a Partnership Agreement
To create a partnership agreement, you’ll want to:
- Outline the purpose of the partnership
- Document each partner’s name, address, and other information
- Write out ownership interest and partner shares in the company
- Outline specific responsibilities, roles, and obligations of each partner
- Note the liabilities of each partner
- Consult a lawyer to ensure your partnership agreement covers all key points to protect both of you.
5. Set Up a System For Decision-Making
Each partnership’s method for decision-making can be different. In many partnerships, major business decisions must be made by consensus, while smaller decisions are made by the designated partner or designated employee. However, you should outline your decision-making process and agree together to avoid confusion.
6. Establish a Financial Management System
Financial management is essential in any business. You must consider accounting, spending decisions, and cash flow management. To do this, establish systems, parameters, or budgets for various aspects of business management to mitigate conflict and ensure reliable financial oversight. Consider hiring an accountant to get accounting software to automate as many financial tasks as possible.
Advantages of Starting a Business with a Partner
Starting a business with a partner has many benefits, from shared workload to emotional support. Here are a few reasons to consider starting a business with a partner:
1. Shared Workload and Responsibilities
Starting a business with a partner can reduce the overall workload and responsibilities. As any entrepreneur will tell you, starting a business can be a lot of work. If you can share this workload and delegate areas of responsibilities with a partner, you can grow the business quickly while also achieving a better work-life balance.
2. Combined Skills, Expertise, and Experience
There’s a reason the world is filled with idioms like “two heads are better than one.” When you can complement each other’s skills, expertise, background, and understanding, each of you brings unique contributions to the table. By combining your strengths and expertise, you’ll have to look for outside help for fewer things and will be able to tackle various tasks easily.
3. Increased Access to Capital and Resources
In addition to personal investment, each partner can secure business loans based on the strength of their credit history. Likewise, if you have different professional and personal networks, each partner can reach different investors, quickly expanding the reach of your company to potential investors or experts who can help the business grow.
4. Enhanced Decision-Making Through Collaboration
Starting a business with a partner allows you to think through major decisions together. Business decisions and responsibilities can weigh heavily on a single owner. By sharing the decision-making process, you’ll collaborate and support each other, consider different perspectives, and work together for the best solution.
5. Emotional Support and Motivation
Starting a business requires extreme amounts of motivation and dedication, which can be hard to sustain in the early stages. A partner can make it easier to stay motivated. You can offer each other emotional support to work through difficult times and build long-term success.
Limitations and Risks of Starting a Business with a Partner
While many partnerships thrive, starting a business with a partner isn’t without risks and limitations. Here is what you should consider:
1. Potential Conflicts Over Decision-Making and Business Direction
While working through decisions together can be fulfilling, a stalemate can trigger feelings of resentment or internal conflict that weaken the business if you can’t agree on the best direction or outcome. It’s important to consider ahead of time how you’ll work through conflicts or disagreements to avoid long-term harm to the business.
2. Dependence on the Partner’s Commitment, Dedication, and Work Ethic
If one partner works long hours and is dedicated while the other shows up only occasionally, the disparity can be a point of conflict and disagreement. Likewise, resentment can build if one partner is willing to work evenings, weekends, or holidays to get the business off the ground, and the other craves regular hours. Discuss work expectations, hours, and commitment before entering into a partnership to avoid this risk.
3. Differences in Work Styles and Management Approaches
From early birds to night owls, many work styles and management approaches exist. While one isn’t inherently better than the other, partners with vastly different approaches can find themselves in conflict. If you love banging out work early in the day and your partner comes alive at 10 p.m., you both may feel frustrated and out of sync.
To avoid this, agreeing on who will oversee which aspect of the business and setting expectations on weekly hours or tasks achieved can reduce conflict.
4. Difficulty in Ending the Partnership or Resolving Disputes
Once the partnership is established, dissolving the partnership in case of intractable differences can be difficult. You’re faced with the decision of one partner buying out the other or finding other solutions that are fair to both of you. However, finding a favorable resolution can be challenging, especially with strong disputes and heated emotions.
Consider outlining the procedure for resolving disputes or dissolving the partnership in your partnership agreement so that both of you are clear on expectations from the beginning.
Final Tips on Starting a Business with a Partner
Starting a business with a partner can be enriching and profitable. You can combine your strengths and work together to build unique product or service offerings. doola’s business formation and compliance services can help. With doola, you get support in forming a company, getting an EIN, and opening a business bank account so you can focus on building your partnership and business.
Is it necessary to have a partner when starting a business?
Having a partner when starting a business is not necessary, but it can be a support and help. You and your partner can share the workload and offer complementary skills and perspectives to build the business.
How should I select a partner who shares my vision?
Consider business goals and objectives to find a partner that shares your vision. Then, choose a person you trust and discuss your levels of commitment and the strengths and weaknesses you each bring to the business. With clear upfront communication, it will become clear whether the partner is a good fit.
How can I maintain a healthy business partnership?
Like any partnership, maintaining a healthy business partnership requires communication, time, and dedication. Work together with your partner to identify short and long-term goals, objectives, and decisions. The more clear you are with responsibilities and expectations, the more easily you’ll be able to maintain a successful business partnership.
How do we handle financial matters in a partnership?
When handling financial matters in a partnership, the partners must agree on who will oversee day-to-day accounting and how major financial decisions will be made. Consider reviewing all cash flow and getting a financial overview together on a regular basis.
Can we change the ownership structure later if needed?
Yes, you can change the ownership structure of a business later if needed. You can create a new business entity or file articles of amendment to change your existing business entity.