All successful partnerships build upon a solid foundation, one that consists of more than just some money in the ring and wishful thinking.

It’s important to discuss and be in agreement about all the terms of your partnership, not just how much cash everyone’s contributing. In addition to financial assets, you’ll need to come to an agreement about everything each party needs to contribute to fulfill his responsibilities as a partner. This includes in kind contributions, such as hours spent working the business or physical assets such as vehicles or computer equipment.

In addition, you’ll need to do contingency planning. While you expect your partnership to be a match made in heaven, things can go wrong. It’s best to decide how you’re going to resolve problems during the “honeymoon period,” including what will happen if the partnership needs to be terminated. After you are in agreement about all the specifics, document everything in a formal partnership agreement, preferably before you start the business.

As important as it is to get things in writing, it is equally important that both parties feel completely comfortable with the terms of the deal. My attitude when starting Hometown Video and Ice Cream Parlor was analogous to a snowball rolling downhill: I was intent on starting the business and nothing was going to stop it. Everything was going to be great.

Pete and I never went through the process of executing a formal partnership agreement. We both contributed some money and divided the business 50/50. Who was going to do what was never discussed. However, had I had taken the time to carefully think things through, I would have seen that I was doomed to a lonely existence, scooping ice cream 60+ hours a week for $400 a week (and even less later!). I was so hell bent on starting the business that I ignored reality and lost my perspective.

I continue to make business mistakes, but entering into partnerships, or any strategic relationship for that matter, without very careful consideration is not one of them. Before I invest in a new partnership, I think through whether I can live with both the best and worst case outcomes. Then, I negotiate and sign a written agreement that fully lays out the terms of the deal that’s fair to both parties.

Questions about this article? Visit the 247advisor.com forum for free, expert advice.

© Copyright 247advisor.com

Top of Page