Start with this definition from businessdictionary.
A type of business organisation in which two or more individuals pool money, skills, and other resources, share profit & loss in accordance with terms of the partnership agreement. In absence of such agreement, a partnership is assumed to exist where the participants in an enterprise agree to share the associated risks and rewards proportionately
A marriage where a pre-nuptual agreement is essential
Slightly more simple but sums things up.
The problem with partnerships is only seen when partners fall out, which brings us back to the marriage analogy. The thing is that when a partnership fails your livelihood goes with it, even if a falling out can be resolved it is often too late to save any goodwill or working relationship.
The Top 3 Tips
These are all essential before starting a partnership. There are far more good practices but get these three in place and you should be on the track.
Essential, number one, main and overriding agreement. Never start on a handshake, always set out the basis of the partnership in a formal agreement. Nobody does business without terms and conditions, so why would you run one without any terms and conditions?
Spend some time and get a proper agreement in place, make sure it is legally tight and has been produced by your solicitor as it needs to be founded on a firm and unbiased basis.
Your partnership agreement needs to contain the following in addition to the standard terms;
- Salary and drawing limits
- Dispute resolution procedure
- Roles and responsibilities
- Dividend policy
- Hours expected
- Split opinion resolution
All of these seem simple but are too often missed out.
With 50/50 partners then what happens when views are different? A minority shareholder should be an independent and unconnected third party who is trusted by all partners. The casting vote is theirs and should be made in accordance with the partnership agreement.
This is based around what each of you does and makes sure you each have access to what the other is doing.
A good example here is that often one partner looks after the books or bank account. The other may be doing sales or business development. In this case make sure a decent bookkeeping package is in place that you each have access to. Then make sure a good CRM system is in place so you can both see what sales are happening, what is in pipeline etc.
It is too easy for individuals to concentrate on what they do. This means when something goes wrong that blame soon occurs. Having clear access and being open about what is going on will help avoid this happening.
In short….Plenty. If you think about starting a partnership in the same way as getting married then you shouldn’t be too far off the mark.
If you want any specific advice on starting a partnership then get in touch on 01293 541333, whilst Lime Consultancy don’t offer this specific advice we do have a few good people that can.
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By Dave Farmer