It doesn’t matter if you’re considering a partnership with your sibling or your best friend since kindergarten. When it comes to business, it’s important to start on the right foot. Sometimes what seem like small problems can spiral into massive predicaments, which can put your company in a vulnerable position, which is exactly the place you’d like to avoid.
If you’re trying to protect yourself (and your company) when taking on a business partner, here are a few ways to minimize your risk long-term:
Always Perform Due Diligence.
Using a site like Check People can save you a massive headache in life, especially when you sign up for a business partnership. Everyone can talk a good game, whether it is a partner that brings a wealth of experience to the table or an investor that could help dominate your industry. What many people don’t like to discuss, however, are their shortcomings in life.
Past issues or discrepancies can make or break your business, particularly if the savvy partner has struggled with financial problems or has had their share of run-ins with the law. A background check will give you full, unbiased disclosure of your potential partner’s past, whether it’s good, bad, or downright terrifying—so you can make an informed decision before you sign up.
Get Everything in Writing.
It’s never easy to think about when things go wrong, but the harsh reality of business is that things don’t always go smoothly. It’s important to have clearly defined roles as partners, highlighting financial and capital contributions, and any ownership interests of both parties.
Your written agreement should also include a formal dispute resolution process, so you’re protected if problems start mounting. This is also the ideal time to discuss what happens should a partner fall ill, dies, or wants to leave the company permanently.
Consider Your Business Structure Carefully.
While you might think that you’ve gotten everything positioned properly, it’s always a wise idea to have an attorney review any documents for clarity and execution. They’ll ensure everything is valid from a contract standpoint and can help clarify any unfamiliar terminology.
Likewise, make sure to have a tax specialist look over your documents. They can give you any feedback for your accounting, help you understand filing requirements, and can clarify any potential red flags you may encounter as the business grows.
Protect Your Financial Investment.
Maybe you consider yourself frugal and believe a business should only spend the capital you receive for the first few years unless you have it outlined in writing, your business partner may have a wildly different idea. Always discuss things like mutual debts to the partnership (that is, how much debt the partnership can carry) without disclosing the other party.
You’ll also want to consult with an insurance broker to find out what type of insurance, deductibles, and value you’re going to need to run the business safely. Make sure to look into any workplace insurance plans (if you’re going to offer insurance) and how that’s going to impact your bottom line.
Never Settle for a Partnership.
Sometimes, a partner sounds great during a dinner discussion but turns into a monster when you sit at the drafting table. Other times, we believe the company should go in different directions and wind up in a standoff. Perhaps that financial investor has a checkered background, you weren’t aware of before pulling his records. Whatever your reason, never feel pressured into a business partnership that doesn’t make sense for both individuals.
A partnership only works smoothly if you’re both on the same wavelength, even when faced with conflict. If you’re noticing that something doesn’t seem to fit right and that the partnership could turn sour, trust your judgment. You can always think things over and reconvene another day, but trying to get out of a contract that you’ve drawn up could end up being a difficult and expensive process.
