The Pros and Cons of Business Partnerships
If you are starting a business, it can be tempting to work with a partner. But there are pros and cons to this approach. Even though forming a partnership might make sense, it is not your only option. Before you form a partnership, understanding how your business structure might look from both sides of the fence is smart. That is why I am going to give you the pros and cons of business partnerships.
Pros of a Partnership
Business owners typically wear many hats and juggle tons of tasks. Owners are surrounded by constant busyness, nonstop working, and smoldering issues. When you have a business partner, you have a person – or many people – who can support you with all business-related tasks. The partners can divide up tasks, meaning tasks will get completed quicker and the partner might be able to deal with more than if they worked alone.
Partners can bring a whole new set of skills and knowledge that you might not possess. This can be invaluable for a business. If you are great at understanding the product or service your business brings to the market, but not how to run a business. You can bring on a partner that understands how to run a business. Your partner might also have some past experiences that can support your businesses journey to success
Starting a business can be extremely expensive. You might have costly overhead outgoings for equipment, inventory, retail space, and many other important assets that are required for running a business. A partner case eases this financial burden for you. Instead of emptying your pockets for everything, your partner can split the cost. Because of the partner’s financial contributions, the business might be able to afford more things upfront. And you might be able to avoid large amounts of debt that can weigh a business down in its formative years. For example, if the business is a ‘handyman’ type of business, there will be a need for equipment and transport, so finding cheap commercial van insurance, for instance, will be a lot easier with splitting it two ways, helping the running costs be a lot lower than if it was just one person doing it. As time goes on and you are looking at expanding your vehicles, the use of fleet management software that includes such resources as https://www.lytx.com/en-us/resources/articles/advanced-driver-assistance-systems-adas, will be extremely helpful and needed to make sure everything is tracked and kept updated.
Starting a partnership is not that difficult. You do not have to file unique paperwork with the federal government. You usually only have minimal local paperwork. All partners involved must sign a partnership document.
This document details the duties and responsibilities of each member included in the document. For example, it usually covers how decisions are made, how profits and losses are dealt with, and more. Creating and signing this agreement is simpler than filling out the paperwork for other business structures.
Cons of a Partnership
You cannot act independently when you are in a partnership. You must work with your partner to make decisions, or at least run all decisions by your partner. If your partner does make decisions individually and makes a negative decision for the business, all partners are responsible for the backlash. You might find yourself cleaning up their messes.
Anytime you get people together at work, there is a potential for conflict. You and your partners will have disagreements. You could even get sick of working together. If it happens, you cannot easily undo the partnership. Hopefully, you have drawn up a partnership exit strategy.
You will need to move profits, losses, and responsibilities around with the remaining partners. Possibly, changing your entire business structure might be the appropriate course of action.
When you run a business by yourself, you have an opportunity to gain all the profits from the business. But if you have a partnership, you must divide up the profits. Depending on how many partners you have, your share of the profits can get pretty small.
A partnership is not a detached legal entity from you and the other partners. All partners are legally and financially responsible for the business. If your business faces legal problems, you will not be considered separately from your business. And, if your business is not able to cover debts, debt collects will come after your personal assets like money.
Ultimately, to make the right decision for your business, you need to understand where you are at. If you are bringing in good levels of revenue but you feel like you have plateaued as a business, it might be smart to bring in a partner that can provide more money for research and development to push your company forward. Only you can know if a partnership is right for you, but the aforementioned pros and cons might help.