Partners in Business

Your business is growing, you have decided to look for a business partner. The selection of a business partner is treated by many in a slap dash manner, little investigation, planning and thought is given to an important step in your business. The decision could make or break your business, so tread warily. So what should you do?

Advantages

·         Spreading the workload and responsibilities.

·         Diversity of skills.

·         Different perspective of looking at the business.

·         A sounding board for your ideas.

Disadvantages

·         Does not have your passion for the business.

·         Different ethics and values.

·         Lack of appropriate business experience subsequently can’t deliver the desired results

·         Sharing of the profits, galling if you put double the effort into the business.

·         Legal liability for your partner’s actions.

·         Your reputation is on the line.

When a partner should be considered

·         Need for complimentary skills

·         Business is complicated and you need help to manage it properly.

·       He is a successful businessperson with a proven track record who can add immediate value.

What should you do?

·         Ask questions.

·         Conduct a due diligence on your prospective partner verify his experience and background.

What questions should you ask?

·         Do I really need a business partner or would an experienced employee do?

·         Is the potential partner financially sound?

·         What are their expectations relative to their time involvement?

·         Is their commitment to the business as great as mine?

·         Are there any private issues which could impact on the business e.g. family commitments?

·         Has he got a sound business reputation, a person of integrity and values?

·         Are they prepared to put everything in writing?

·         What happens if it does not work out?

Legal

Gone are the days when business was concluded on a handshake, business is too complex and the risk too high that something could go wrong. Consequently you need to consult with a competent attorney to prepare the necessary legal documentation.

·         Buy sell agreement

• Relates to what occurs when either of the partners no longer wishes to remain in the business or dies. The agreement deals with the disposal of the relevant partner’s interest in the business and protects the remaining partners from a hostile takeover.

·         Partner/Shareholder agreement

•   Covers the respective responsibilities, management of the business and the remedies for failure to adhere to these.

Insurance

Death comes to all of us, you need to consider taking life insurance to cover the value of the shares and/or loan accounts due to a deceased partner’s estate. This is an oft neglected aspect the neglect of which can cripple a business financially should it have insufficient funds to meet the commitments on the death of a partner.

Going into business with another can be a blessing or curse one needs to be careful and tread warily, this requires sound judgement, investigation and assessment of the relative risks.

Sources: Entrepreneur magazine

Brian Taylor is s director of TFA Global (Pty) Ltd – a Business Accounting practice providing comprehensive advisory, accounting,payroll and tax services for business. He can be contacted on 021-9481584 or brian@tfalgobal.co.za