Before you rush into a partnership, there are some things you need to know first.
Business partnerships can be amazing – or they can be a total nightmare.
The difference often comes down to what you do before you shake hands and sign papers.
If you're considering a business partnership, you need to know the hard truths most people won't tell you.
Trust me, this could save you a world of trouble down the road. Let's dive in.
Be Careful Who You Partner With
First off, take a good look at the person you're thinking about partnering with.
Are they always getting into arguments or lawsuits with people? Does their personality rub you the wrong way? If so, think twice.
You don't want a partner who will sue you or get your business into legal trouble.
Listen to how they talk about their past business relationships. If it's all negative and they're always blaming others, that's a red flag. You might be next in line for that treatment.
Consider Alternatives to Full Partnership
If you're unsure about a full partnership, consider a profit-sharing agreement instead. This way, they get paid for their work and successes, but you're not tied together as formal partners.
Use a Vesting Schedule
If you do decide on a partnership, think about using a vesting schedule. Don't give them their full share right away. Let them earn it over time as they meet their commitments.
For example, if they're going to get 24% of the business, maybe they earn 1% per month over 24 months. Write down exactly what they need to do to earn their share.
Include a Cliff Provision
Add a cliff provision to your agreement. This means if the partnership falls apart before a certain time (like 6 months), they lose whatever they've earned so far. This protects you from ending up with a partner who's not pulling their weight.
Plan for the Future
Think about what happens if one of you wants out in the future. Maybe someone finds a better opportunity or wants to retire. Set up in advance how you'll value the business and how you'll split up.
Also, plan for the worst. What if one of you passes away? My brother and I have life insurance policies in our business.
If one of us dies, the insurance pays off the deceased partner's family, and the surviving partner gets the business. This prevents arguments about the business's value.
Be Careful with Long-Term Partnerships
If you're entering a long-term partnership, like an ongoing business, you need more controls and agreements in place.
It's riskier than a one-time deal like flipping a house.
Get Legal Help
If you're serious about an equity partnership, work with a business attorney. They can advise you on what to discuss and how to draft the right agreement.
This is crucial because issues usually arise when you're successful and there's money to argue about.
Final Thoughts
In my world, the ideal setup is one person owning and running the business, with others working for profit shares based on what they bring to the table. Equity partnerships are a big step, like getting married.
Getting out can be as difficult and expensive as a divorce.
So, think carefully before you enter a partnership. Make sure you have the right agreements in place. And remember, it's always easier to avoid problems upfront than to solve them later.
