Choosing Business Partners

Several years ago, we taught a series of classes for burgeoning entrepreneurs based upon the contents of my book, “Business Beginnings Principles and Practice.”

Many businesses are birthed by two or more like-minded people who have a vision to share their products and services with the public. Partners in business may be established in several different ways. Your spouse, if involved directly or indirectly, is your business partner. A legal partner or co-owner is also considered a business partner. A networking group with an exclusive referral agreement would also be considered a business partner. In this section we will discuss the impact of business partners, and we will also give you a practical list of what to avoid.

Business Partners

Choosing a business partner(s) is a highly subjective matter. Many times, people with like vision and common points of contact will consider pursuing a business venture together. Too often we have seen people rush into agreements with others without adequately evaluating the potential risks and rewards. A business partner should bring something to the table you don’t already have. His strengths should offset your weaknesses and vice versa. The combining of giftings, talents and abilities should improve business and accelerate its growth.

Questions to Ask About Yourself

To operate a small business profitably, strength is required in four main areas; knowing how you operate in these key areas is essential to your success as an entrepreneur. These areas are: 1) Money management/budgeting/reporting. 2) People management (customers and employees). 3) Workflow (quantity and quality). 4) Recognizing and communicating the need for change.

Once you and your partner(s) have identified your strengths it would be beneficial to compare your lists. If you are both strong in certain areas, capitalizing on your strength as you develop your business will increase your success. Alternatively, if neither of you is strong in certain areas we recommend finding someone who is strong in that area. It may not be necessary to bring another person into the partnership, but you do need to “hire” those functions out to ensure the success of your business.  

Ownership and Employment

Once you come to an agreement as to who will do what, the next step is determining the worth of each partner to the business as a whole. This worth will then be compensated through a paycheck to the partner as an employee, or through dividend distributions to the partner as an ownership privilege. Many partners choose to be compensated both ways; in other cases, one partner limits his involvement in the daily operations of the business, hence not receiving a “paycheck” for services performed. Rather, he prefers a distribution of profits based upon his share of ownership. You should consult an accountant before establishing the business to assist you in making these decisions. Once the determination has been made as to the ownership percentages and the operating responsibilities of each person, an attorney can then help document this understanding by preparing an employment agreement for each working partner.