Before You Form a Partnership, Make Sure Your Bases Are Covered

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No man is an island -- not even you, fearless entrepreneur. Even the sharpest business owner has to call upon others for assistance. And sometimes you need a partner to really help your business take off.

When I started a business nearly three decades ago, I didn't go it alone. My partner, Mark, was my best friend since grade school. We decided we’d be partners before we even knew what type of business to start.

We decided to start a custom software business. However, it was the 1980s, and we were too early in the game. So, we tried a second business idea: a recruiting network. 

But even with a partner, it wasn't easy. It took a lot of faith and perseverance but finally the business took off. Our partnership lasted eight years and Top Echelon Network is still successful today. 

Related: A Crash Course on Licenses, Joint Ventures and Partnerships

If you want to start a business with a partner, here's my advice on how to make it work.

Choose your partners wisely. 

Find a partner who complements you. If you know the operations aspect, find someone that can handle marketing. This will allow you to focus on your strengths and what you enjoy doing.

As business partners, Mark and I also complemented each other. He was the better programmer and I was the better salesman. I wasn't afraid to make cold calls to help our business take off, and he never wanted to make a single sales call. We were a good match, so the partnership worked.  

Protect your important relationships. 

Before you consider a partnership with a friend or a spouse, ask if it's worth jeopardizing the relationship if the partnership sours. Things do happen! When you go into business with friends, it can be difficult to maintain your professionalism, and it can be easy to skip over the all-important partnership agreement.

Likewise, it can be extraordinarily difficult to partner with a spouse. A business partnership can put extra strain on a marriage and vice versa. If you decide to go this route, maintain the boundaries between home and work, clearly define each partner's roles and definitely keep a sense of humor.

Have a good talk.

 All parties should engage in serious discussions before entering into a partnership. Talk about whether you share the same vision and goals. Discuss how you will handle compensation for each partner. Do you have a similar work ethic? How you will divvy up the workload? How much can each partner invest financially? How will you end the partnership if it doesn't work out? Hammering out these answers will help your partnership in the long run.

Related: The 5 False Expectations That Could Destroy Big-Brand Partnerships

Look into the different types of partnerships. 

Think there is only one type of partnership? You are wrong. With a general partnership all partners equally share the profits and losses, unless you agree to something different. With a limited partnership, one party acts as the general partner and the others as limited or silent partners. Your attorney can help you decide which type of partnership is best for your situation. 

Make it legal. 

You may think that a handshake will suffice but that won't cut it, especially if there are disagreements or one party wants out. If I had to change anything about my partnership with Mark, I would have made sure we had a buyout agreement. In the end, figuring out how to value the company proved to be the hardest part. I recommend that you figure out that formula in advance.

When you meet with your attorney, make sure your partnership agreement spells out the following:

  • How each partner will be compensated and how often.  
  • The roles and responsibilities of each partner.
  • Your exit strategy if one or more parties want out of the partnership. 
  • What happens if one partner dies.

Revisit your partnership agreement from time to time. 

As your business changes, your roles may change. You may want to bring in more partners or change the terms at some point. It's a good idea to periodically take a fresh look and make sure the agreement is up-to-date.

A partnership can be a great way to launch your business. With careful planning, the right personalities, a sense of humor and a bit of luck, your partnership can be a great success.

Related: Richard Branson on the Value of Debate in Business Partnerships