5 Questions to Ask a Potential Business Partner
Most entrepreneurs end up working with another person to make their business dreams happen. However, business partnerships can be tricky. […]
Most entrepreneurs end up working with another person to make their business dreams happen. However, business partnerships can be tricky. Before you decide to go into partnership, you need to know more than whether this person has good ideas. You need to have a frank discussion about each other’s backgrounds and future expectations. Ask every relevant question you can think of. Here are a few to get you started:
How Much Time and Money Do You Expect to Put In?
Not all partnerships are created equal. Depending on your skill level or how comfortable you feel with certain parts of the business, you and your partner may split up efforts differently. Before you take on a potential business partner, you need to work out how much each of you will put into the project. Talk in terms of money and time because each has its own pros and cons. Even better, hammer out a list of duties each of you is responsible for and what happens if you fail to complete them.
How Much Ownership Do You Expect to Have in This?
Just as all partnerships are equal, neither are all ownership stakes. It’s not unusual for partners to have different ownership percentages in a business. Sometimes it’s because one partner is putting more equity in the business in terms of time or money. Perhaps the business is one partner’s baby while the other one would prefer to be less involved due to other commitments. Skill sets can determine ownership percentages, too. You and your partner should have a clear idea of who owns what before any work begins.
What’s Your Credit Like?
You may think your personal credit has no bearing on your business dealings but you’re wrong. Startups often have to rely on the personal credit histories of the key officers in the company to secure investors and business lines of credit. In addition to credit, you should have a frank discussion about any criminal past that may come up in during background checks. Investors, vendors, and banks may also run financial and criminal checks when determining whether to work with you. If there’s anything to know, you should know it beforehand.
What is Our Exit Strategy?
Few businesses last a lifetime. Even if yours does, that doesn’t mean you’ll have the same role the entire time. Although you don’t have to have it planned down to the exact date and detail, you and your partner should have an idea of how far you want to take this business. Be honest about what each of you expect to get out of the experience and what conditions would make you ready to move on. Then have a frank conversation about what the exit requirements are. What kind of notice do you require? What are the buyout terms? Is there some situation where one partner can force another to exist? Do the terms change depending on who requested the exit?
When Do You Want to Sign the Partnership Agreement?
You should never take on a partner without entering into a partnership agreement. The question should be when the agreement is signed, not if. Partnership agreements will vary depending on the type of business you’re putting together and the terms of your partnership. Make sure yours has covered every aspect of your agreement. Ask a legal representative to draw it up or approve the one you already have in mind. Hammering out the partnership agreement may take a while but don’t be tempted to move forward while you’re waiting on the terms to be worked out.