Q: My wife and I have a plumbing business operating as a sole proprietorship, and we're thinking about expanding our business by forming a corporation with two other plumbers. Can you advise us on the pros and cons of teaming up with outside partners?
A: We'd be delighted to give you a few things to consider as you decide which route of expansion to take. As your question implied, there are both pros and cons here-plenty of both.
Let's clear up one thing right away: Your new partners will not be "outside partners." You're contemplating an arrangement as serious as marriage. As such, it's an arrangement that can provide as much fulfillment as it does anguish. Your business partners will be a part of your life, morning, noon and night. Decisions you make now could well become sources of endless conversation, debate and, finally, resolution. And if you select the right partners, the extra time you spend making those decisions can pay off in terms of better customer service, higher employee morale and greater profits-to name just a few benefits.
Some decisions will even be deferred indefinitely, often for the better. But make no mistake: If you're used to running your business as many sole proprietors do-like a personal piggy bank-those days will be fond memories. Your new partners will be putting their money, time, expertise and dreams on the line. They'll be looking for a return and a say.
Of course, you're looking for a return, too. You want to expand your business. You didn't indicate whether you wanted to expand by moving into new locations, offering new services or merely taking on additional business. Others may disagree, but we believe you should thoroughly evaluate all other options before bringing partners into your business.
Money is one of the most common reasons for seeking partners. You may need the money, but do you really want to give up the total control you now enjoy? Is a bank or Small Business Administration loan a better avenue? Can your suppliers offer expansion capital? If you've rejected all other sources of expansion and you're set on bringing in partners, be aware of what your ideal partners will bring to the company: money or expertise. And make sure you have a clear understanding of each partner's responsibilities. Fully discuss how profits and losses will be distributed, how disputes will be settled, and when and how additional partners may be brought into the business.
As excited as you are now, try to understand that your business life will change in ways you can't imagine. Know your future partners as well as you can. We know two businessmen who even had an "engagement" before the final "vows." They "lived" together for six months, acting as one business informally. In the end, they didn't become partners; instead, they formed joint ventures for projects they couldn't handle alone. For the other 95 percent of their business, they're still independent businessmen and competitors. It's an arrangement that worked for them and could work for you as well.
Rod Walsh and Dan Carrison are the founding partners of Semper Fi Consulting in Sherman Oaks, California and the authors of Semper Fi: Business Leadership the Marine Corps Way.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.