What should I consider when entering into a partnership?

What should I consider when entering into a partnership?

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What advice do you have regarding entering into a 50/50 partnership? I work full time, my technical partner will doing the work and manage salespeople. What should we consider when setting up such an arrangement?

There are many advantages to a partnership. Firstly, two heads are better than one. In addition, a good partnership can provide great synergy. For example if one partner has a set of skills that the other party does not have.

However, both partners should have the same vision for the business and they both need to have clear understanding of what each member brings to the partnership which ideally would be complementary skills and professional backgrounds.

50/50 partnerships pose a particular challenge in that when people enter into this type of partnership, each assumes they will be allocated an equal work load and that is often not the case.

Therefore before deciding on the size or portion of the partnership, they should both consider each partner’s contribution based on the amount of time they’ll be putting in.

Every business needs a leader therefore they need to appoint a CEO or managing director even if it’s a 50/50 partnership. Someone needs to be accountable and take operational control of the business.

 

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Find a balance that suits both of you

The output from the ‘technical and idea guy’ must be clearly communicated. Both partners need to be on the same page and share the vision of where the business is going.

If this is not the case, perhaps you should consider employing a technical worker on a contractual basis as opposed to bringing them in as a partner.

The pitfall of partnering with someone just because they have technical skills is that the latter may, in the long run, feel as though they are being exploited to achieve your dream.

On the other hand, the person who came up with the idea may also feel like the rewards of their entrepreneurial concepts are unfairly being used by the other party.

A business requires a lot of hand holding, so while the concept of working full-time and having a business on the side sounds easy, oftentimes people over-simplify the requirements of the business especially when considering the time aspect.

You need to consider the demands of your full-time job. For example, does the demand of the job allow you to put in another four to six hours in your own business per day? Or, would you be able to take an extended leave from work at the outset so as to ensure that the foundational structure of your new business has been properly laid down?

The partnership agreement

Employ a well-qualified attorney with a good track record in business partnerships because this is a specialised field. The attorney will ask all the right questions regarding the partnership in order to provide the best advice on, for example:

  • The objectives of this partnership
  • Roles and responsibilities
  • The measurables
  • How the partners will share and distribute income AND losses
  • Dispute resolution procedures
  • Exit strategies of the partners
  • What to do in the event of death or incapacitation of a partner.

 

Sipho Pilime
Sipho Pilime is a business mentor at The Hope Factory. During his career he has assisted both small and large businesses across a range of industries to realise their growth and development aspirations. An entrepreneur himself, Pilime is passionate about helping to improve socio-economic standards in southern Africa through the empowerment of small businesses.