Alfredo
Varón Guzmán M.A.

Are
Partnerships a Great Way to Start in Business?

In
theory, a partnership is a great way to start in business. In my
experience, however, it's not always the best way for the typical
entrepreneur to organize a business.

Why?

The
tough thing about most partnerships is that they are just like
marriages, and if you know anything about those statistics, you know
half of all marriages don't survive. Making a marriage work involves
handling a volatile mix of partnership issues: ego, money, stress,
monthly overhead and day-to-day expenses. Throw in some employees you
must manage, and you have a good idea of the work required to make a
business partnership successful.

Think:

1. Sharing
   capital instead of expenses: Whenever you share your own capital --
   be it money, resources, information or property -- you automatically
   give away your enterprise ability. In a perfect world, the person
   you are partnering with is upright, full of integrity, and not at
   all tempted to take this gift and run with it as his own. However,
   the world's not perfect. So be careful. Instead, work out an
   arrangement where expenses are shared in an "associative"
   arrangement. It also makes it easier to walk away if things go
   wrong.
   
   2. Partnering with someone because you can't afford to
   hire: This is a partnership killer right from the start. The scene
   is always the same: Bob has a business idea and Fred has the
   business skills, but Bob can't afford to hire Fred as an employee,
   so they decide to share duties, expenses and profits. What happens
   is both Bob and Fred end up working against each other, and Bob
   finds himself liable for Fred's obligations (financial and
   otherwise) under the partnership agreement. If you've got the idea
   and someone else has the skill, simply hire him or work out an
   independent contractor agreement. Don't give away what you don't
   have to.
   
   3. Lacking a written and signed partnership
   agreement: Due to the nature of partnerships, every detail and
   obligation must be clearly defined and written out, and agreed upon
   by all parties. This is best done with a written legal agreement
   drafted by a well-qualified, mutually agreed-upon lawyer. Just make
   sure the attorney is well-versed in business partnerships, and be
   sure to keep her card handy at all times. You may need that person
   again when things go wrong.
   
   4. Overlooking a limited
   partnership: One of the main downfalls of a partnership agreement is
   the assumption of liability each partner makes for the other. A way
   around this is a limited partnership, where the limited partner is
   not liable for the actions or obligations of the general partner.
   Again, make sure an attorney well-versed in partnership agreements
   writes this arrangement.
   
   5. Lacking an out or an exit
   strategy: Big-time marriages start with a pre-nuptial agreement. In
   business and contractual terms, a pre-nup is analogous to an exit
   agreement. In any partnership agreement, define the terms of an exit
   strategy that allows you or your partner to walk away from the
   partnership, or that provides options to buy out the other party.
   This can be done very clearly and simply -- and without imploding
   the operations of a successful business.
   
   6. Expecting the
   friendship to outlast the breakup of the partnership: Again, from
   the perspective of a marriage, how many ex-couples do you know who
   are truly friends? Not many, I suspect. So don't go into any
   partnership with a friend expecting to remain friends after a
   partnership breakup. It may sound great to do business with your
   friends, but remember, in the business world, it's always business
   first and friendships second. Also remember, most times when the
   business ends, so does the friendship.
   
   7. Having a 50/50
   partnership: Every business, including partnerships, needs a boss.
   If you decide to go the partnership route, make it a 60/40 or 70/30
   split. Then you and the business have a point person for
   accountability and overall operational control. Also, keep your
   buyout or exit strategy clear and in your favor -- benefitting you
   and saving problems down the road.