Business partnership can be beneficial for business owners, because the right partnership can bring growth, advancement, new innovation, ideas to the business, including synergy and risk sharing between partners.
As crucial as having partnership in business really is, it’s important to note some signs and mistakes to avoid that may lead to wasted finances, efforts and time, while getting into partnership.
It’s important to understand the two kinds of business partners, namely:
Limited partners and general partners.
- Limited partner: This is someone who becomes a partner to the business by having a good number of shares with the business, but isn’t involved with the day to day activities of the business. Limited partners serve as investors to the business only, without total control of the business.
- General partner: A general partner is involved in the management of the business, sharing in the debts, profits, taxes and assets of the business.
General partnership is a good choice of partnership for growing businesses as it’s not complex to set up and partners are involved in the total walfare of the business.
In our previous post, we explained 15 qualities which you should look out for when choosing a business partner. However, in this article, we will be sharing vital factors that are often overlooked which bring about issues in business partnership.
10 Mistakes To Avoid When Forming A Business Partnership
1. No written agreement: Most often than not, I see business partners naively make this mistake. Partners enter into partnership without a written binding document stating policies and specific duties on how the partners will carry out daily activities to achieve the business goals.
Written agreement allows business partners to utilize their respective skills in favour of the business and it also defines the terms of the partnership to avoid arguments and strife.
Policies writing down, will protect the partnership in rainy days as each partners will understand the law binding them in agreement and enables them to focus on achieving results instead of thinking only of self interest.
Also we make the mistake of going into partnership with friends with total trust and dependence on the goodwill of friends, believing we can’t be cheated by our good friends, thereby we neglect having a written agreement backed up by law.
In most cases, this kind of trust often leads to lost friendship and heartbreak. To avoid this mistake, there should be a written agreement by the partners from day one and the agreement should encompass duties of partners, responsibilities and rights of each partner.
To be fair to yourselves, if autonomous power is weighted by one partner, break the tie by introducing a new partner to the business.
2. Lack of common business or organisational vision: Going into partnership can be really exciting for a business owner, the thoughts of the additional help and strength you could rely on to carry on with the day to day activities of the business can be soothing, and you make the mistake of not sharing your vision with the new partner about where the business goals are both short term and long term and how you intend to achieve the goals.
Lack of shared business goals poses a big threat to your business as your partner without knowing the vision, will work according to what they feel is best for the business. Their perceptions might be in direct contrast with yours and may bring about difficulty and failure if not addressed and aligned.
Avoid this mistake by sharing your business vision, and ensure that you and your partner/partners fully aligned with regards to the vision This step will ensure they are in tune with achieving the business goals, objectives and vision.
3. Over promising: One mistake new partners make is giving too many good to be true promises. You hear them say words like “with my inputs in this and that, the profit is sure to triple”.
Use your words wisely, as unfilled promises tends to ruin your professional image, bear in mind that it can affect your relationship with other workers and meeting them in other spheres of life.
4. Lack of appropriate benefits/profit sharing between partners: When forming a business partnership, it’s important you create a win win situation for all parties. If the benefits, profits and other incentives coming from the business is one sided, it will lead to bad partnership.
Most times, we go into partnership outlining how well we will benefit from it, not considering how well the other partner may benefit from it, or we completely rule out the fact, that the new partner has as much right to benefit from the business as we do.
Be fair and transparent in dealings made, so trust can be promoted and it automatically boost the relationships between partners.
5. Forming a partnership just for the sake of having one: Some business owners believe partnership is a show off mechanism that boost the ego of the business.This is a wrong footing to establish a partnership on.
Business owners need to understand the productivity and efficiency partnership brings, and know how to utilize the relationship to generate good revenue for the business.
6. No specified duties and responsibilities: Another big mistake often made by business partners is not having clear and defined duties. With loaded responsibilities, new partners may well be aware of the vision and objectives of the business but often find themselves at a crossroad of not knowing what to do in order to help in achieving the goals of the business.
Giving clarity and outlining specific responsibilities will enable the partners to be committed to contributing and achieving the goals of the business.
Also, ensure that duties outlined be flexible and concentrate on steps to propel growth for the business.
7. Not recognising the efforts and contribution of each partner: It’s important to recognize the efforts put in by other partners towards achieving stated objectives. Ignoring this brings discord and unwholesome opportunities to try and prove they can do better. This thinking tends to steer partners away from building great working relationship with other partners.
Don’t take the glory for the successes you enjoy in a business or organisation. Instead, give credit to every partner and always appreciate their contribution to your business. Failure to do this could make partners less motivated to offer their best into the business.
8.Underestimating or ignoring the limitations of the business: There should be a clear understanding of the capabilities and limitations the business has.
An understanding of this nature will help partners to project the company capabilities in good light and not overshoot it’s limitations.
9. Unfounded assumptions: Most times we have a perception of a looming problem but fail to find out of our perceptions are real.
Don’t work in assumptions, instead, investigate and tackle the issues.
When we ignore this feelings, we may have given room for fraudulent practices to occur and we get cheated out of the business.
10. Lack of provision for an exit plan: Business owners for one reason or the other tend to leave their businesses either through death or bad turn of events in the business.
Most times no provision is made for such exit, when the time comes for such exit, partners usually have conflicting views on how to handle exit situations.
A prior exit plan should be made for partners leaving the business, where provision to relinquish shares or sell it to other partners or named beneficiary is stipulated.
Partnership can be beneficial to business owners, but it inevitably brings about conflicts especially when the business has visible growth and increase in profit.
In other to avoid future conflicts of any nature, partners should have a well drafted legal agreement specific to their businesses. Clearly define the compensation, responsibilities and equity before venturing out.
Make provisions that allow each partners delivers results to gain equity.
Unless you have reasons to, don’t be too trusty, allow partners contribute their quota to the business, neither relinquish your responsibilities to your partner to fully act in your stead.
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