Vijay Amin of ABI Associates considers the pros and cons of going into business with partners
Why go into a business with someone else?
It's not for everyone, some people prefer to retain full ownership of a business and call all the shots, but having a partner can provide a way to share set-up costs, workload and responsibility. It can make life seem less lonely, too. Often one person has the experience, skills and maybe the personality the other lacks. One person might bring more money to the table; perhaps even take less of a day-to-day role in running the business. You should only ever go into business with someone if that gives you something you lack, otherwise there's no point.
How common are business partnerships?
Actually, they're still quite common. Frequently, married couples, family members, friends or colleagues decide to set up together. Many famous successful enterprises have been the result of friends forming businesses together, for example, Innocent Drinks, Ben & Jerry's and even Microsoft.
Sounds great, but are there any risks to forming a business partnership?
You should only go into business with someone who shares your long-term commitment to work hard and pull in the same direction to achieve shared goals. The biggest risk is people having different ideas about hard work and commitment. Often people disagree on where they want to take a business, too. Trust is crucial: when that runs out partnerships usually end. Minor disagreements can be healthy, as long as things don't get personal and any issues are resolved fully. Sometimes your intuition will tell if it's a good idea to go into business with a person. If people fall out, then ultimately it can lead to one partner leaving or in the most extreme cases, things get legal and the partnership comes to a sticky and possibly expensive end. That can ruin friendships, too.
How important is it to get on with your business partner?
If you plan to work closely with someone every day, you have to get on with them. That said, a close personal friendship should not be allowed to interfere with what's best for the business.
What partnership options are there?
Partnerships can be between two or more people. You can set up as an 'unlimited' or 'limited liability' partnership. Unlimited means partners are exposed to the business's liabilities; limited means you have protection, if the business is run in a proper manner. Your choice will depend on business type and how comfortable you are with risk.
And if the partnership doesn't work out?
The ease at which a partnership can be wound up will depend on ownership split and whether there's an agreement in place. If things go wrong, it's in the interest of both parties to bring things to an end as quickly as possible. This may or may not involve one part buying the other out.
What's the key to making a partnership work?
Well-matched partners have a far better chance of succeeding, so, if necessary, spend a lot of time talking about your hopes for the business. Discuss what you would do if you disagreed about a fundamental issue or if money was tight. Going into business with someone with a similar outlook is important.
And after the partnership is formed?
Honesty and mutual trust are vital. Partners must also want the same things for themselves and the business and be prepared to work as hard as each other. You could call it a shared outlook or work ethic. If you are similar to your partner, you're less likely to have petty squabbles or big disagreements. You've also got to be prepared to take similar wages from the business, too, it might mean both partners must be prepared to make the same sacrifice until the business becomes established.
Any other advice for business partnerships?
Find a third party, someone both partners trust, who can mediate should things go wrong, maybe consult on important decisions. A section on managing disputes should be included in any deed of partnership, which sets out the terms and conditions of the relationship. Having a document that sets out partners' roles and responsibilities right from the off is wise.
Written with expert input from Vijay Amin of ABI Associates.