Working for yourself is one of the greatest perks of being an entrepreneur. Without a doubt, it’s great to be your own boss, set your own schedule, make your own decisions, and be responsible for you and only you. But once business picks up, that may need to change. If you find yourself struggling to manage a massive workload or want to leverage the skills and expertise of a co-founder, you may consider forming a partnership.
Business partnerships are common, but proceed with caution. “Never take this choice lightly,” says Elaine Biech, author of The New Business of Consulting: The Basics and Beyond. “Even if you believe you will work well with another person, there are always growing pains at the beginning. Once all the bugs are worked out, a partnership can be really rewarding, but it could also go the other way.”
Biech—who had a partner for five years but is currently on her own—says the relationship is more like a marriage than marriage itself. You and your partner must complement one another’s skills, trust each other, be able to make decisions together, and communicate well. “You’ll be spending a lot of time with the person, and his or her life will deeply intertwine with yours,” she adds.
That said, here are six things to consider before you form a business partnership.
1. Do you truly understand the pros and cons of partnerships?
Entrepreneurship can be a lonely endeavor, and the thought of having a co-founder to bounce ideas off of and cover for you if you become ill (or just want to go on vacation) can seem like the perfect answer. Partnerships can broaden your business capabilities, expertise, skills, and experience.
Yet there are plenty of disadvantages as well. One of the biggest is also one of the advantages, depending on how much you value independence: You must share decision-making with someone. Also, you will need to share resources. This can be a concern as a consultant, especially if one of the partners is either generating or billing a greater proportion than the other.
2. Can you work together?
(Don’t just guess at the answer!) Form a trial business relationship or a short-term joint venture to explore the likelihood of a successful permanent one. Create an arrangement that allows you and your potential business partner to work together for 6 to 12 months before making the relationship permanent. This will give you a better idea of how you will resolve conflicts, manage workflow, and how well you actually work together.
3. How will you set up the partnership?
Both parties should agree upon the way you will legally set up your partnership as well as how you will handle its ownership. “My partner and I chose to incorporate legally as a subchapter S corporation,” says Biech.
“We decided that because I had more equity and eight years in the company, I would maintain slightly more than half of the ownership. And although we didn’t consider it at the time, my slight edge of more than half of the ownership meant that the company would be a woman-owned business. Some organizations use that designation to make final decisions for awarding contracts.”
4. Does your potential business partner have the right qualities?
Make sure your potential partner:
- Shares your values and vision
- Is a natural entrepreneur
- Is financially stable
- Brings credibility to the business
- Brings skills, experience, resources, and contacts to the business
- Is ethical and trustworthy
- Is someone you respect and genuinely like
5. How will you decide on compensation?
Both parties need to feel fairly compensated for their work. So figure out the monetary arrangement early. Will you both earn equal salary? Will you have a different arrangement?
“Prior to becoming an official partnership, my partner and I agreed that he would work for at least one year at a reduced salary,” says Biech. “The salary not taken was his way of buying into the company. We agreed that we would draw the same salary after the partnership was formed. The split of dividends, of course, is governed by law. We would each receive an amount proportionate to the percentage of ownership.”
7. How will you divide responsibilities?
Dividing responsibilities and roles are often the most difficult tasks. Create an operating agreement that clearly outlines roles and titles with defined responsibilities. For example, a founding partner can focus on work with major clients and maintain the broader vision, while a managing partner can manage the daily operations of the company, including sales and marketing.
“In my case, my partner and I were separated geographically: My office was in Wisconsin, and his office was in Virginia,” notes Biech. “Each of the offices was responsible for different aspects of the business—for example, invoicing clients, bookkeeping, or producing client materials. Each of us had responsibility for running an office and managing the staff at its location.”
Before you tie the knot
If, after weighing all these factors, you do decide to bring in a business partner, be sure to plan for the possibility that something could go wrong in the future.
“Put all agreements in writing and devise a plan for the details of a breakup, should one be necessary,” says Biech. “Depending on your situation, you may want to tap your business attorney to help make it official.
Elaine Biech is the author of The New Business of Consulting: The Basics and Beyond. As a consultant, trainer, and president of ebb associates for more than 35 years, she helps global organizations to work through large-scale change and leaders to maximize their effectiveness. She has published 85 books, including the Washington Post #1 bestseller The Art and Science of Training. She is the recipient of numerous professional awards and accolades, including ATD’s inaugural CPLP Fellow Honoree, ISA’s Broomfield Award, and Wisconsin’s Women Entrepreneur’s Mentor Award. Learn more at elainebiech.com.