You planted your business idea, celebrated when you saw the first signs of life, cared for it meticulously, and now it’s flourished into a tangible asset with solid roots and potential. Congratulations! You are only a few steps away from your own private island and airplane! However, you quickly realize that in order to keep growing, you’re going to need additional support. So you go to the copy store, print out bunch of business plans with a general game plan, ask around for some cash, and accept an offer from the first person willing to write a check. Right? Of course not! Taking on a business partner is a huge decision, and one you need to plan for, and evaluate, carefully.
Here are 7 tips to get you started:
- Make Your Strategic Plan: At the very least, this should include your vision and mission, key values, a SWOT analysis that identifies your strengths, weaknesses, opportunities, and threats, your annual goals, and your 3- and 5-year long-term goals.You should know this document by heart, and be able to reference it articulately in conversation with potential investors and partners.Once you are satisfied with your plan, you should ask your attorney and accountant to review and challenge it.You should ask them to identify at least three areas of weakness so you can make improvements, before you present to potential partners.
- Review Their Resume’: A resume’ will give you valuable insight into someone’s work experience and potential.Even if you are already familiar with your potential partner, ask them to review their work history and biggest accomplishments with you.Be sure that the skill sets they are strongest in will complement your own.You should also identify their weakest skills, and areas for improvement.Their shortcomings are likely to cause challenges for you down the road unless you make a plan together for how to communicate, improve, and work in tandem.
- Review Their Values: While it’s cute to think that business “isn’t personal”, it almost always is.Your partner’s personality will come through in your business dealings, so you’ll want to make certain that their ethical practices, values, and integrity are a fundamental force behind the decisions they make, and actions they take.
- Don’t Partner Up with a Victim: If you find at any point during your discussions that your potential partner always seems to have an excuse for why things happened “to them” instead of how things happened, and what they learned from it, run!A valuable partner is someone who accepts responsibility for their actions, identifies how to improve, and remains accountable.
- Don’t Share Anything Without Signing an NDA: A confidentiality agreement, or non-disclosure agreement (NDA) is a vital document that needs to be in place before you share anything of value about your business.You might think your new BFF won’t spill the beans on your secret sauce, but the minute your relationship stalls, they’ll have your information, and without an NDA, they’ll also have the rights to use it at will.Be sure to ask your attorney to review any confidentiality documents you are asked to sign, as many confidentiality agreements are one-sided and drafted to protect only one party.You’ll want to make sure your information, intellectual property, and all discussions and communications are adequately secured.
- Make Sure the Deal is Fair: It might be tempting to jump at the first offer for cash that you receive, or to hitch your wagon to the shiny star who amazingly wants to partner up with you, but it will pay to slow down and take some time to do your due diligence on the transaction.If they are asking for a larger share of the business, profits, or responsibility, take the time to determine the legal risks and ramifications.Don’t be afraid to negotiate!After all, this is your business, and you are in charge.Only make a deal that will bring you long-term happiness and success.Command respect by being respectful, and clearly communicating your needs.
- Put Your Agreement in Writing: Don’t assume that a handshake will solidify the core terms of your business deal.A valid legal document, such as a partnership agreement, will clearly identify the terms of your arrangement, and ensure that your business is protected against future claims.You should engage a seasoned business attorney to draft this document for you.
Choosing a business partner is a lot like choosing a spouse. You will be tied together in times of happiness and disaster, for better or worse. By using the strategies above, you can confidently make sure that the relationship is set up for long-term success.
Andrea A. Tarshus, Esq. began Tarshus Law Firm @Tarshuslaw.com in 2015 to fill a void in the legal ecosystem: efficient, accessible, and fair in-house and General Counsel legal services for business owners. Her engagements regularly include business legal startup paperwork, negotiating and executing contracts, administering internal legal and operational controls, and creating legal documents that protect the company’s best interests.
This article is intended to be informational in nature, should not be relied upon by the reader without consultation with an attorney, and does not create an attorney-client relationship between the author and reader.