The Ten Deadliest Errors That Business Partners Do—And What You Can Do About Them

 The Ten Deadliest Errors That Business Partners Do—And What You Can Do About Them

Finding a strategic or joint venture partner is a great approach for an entrepreneur to get the financial capital they need to expand their business. Each participant in a successful relationship will bring something unique to the table, whether it's knowledge or resources (such, say, money).

A partnership, when executed well, may be a terrific method to expand your firm without undergoing extensive and challenging internal changes. You may improve your market share, acquire an edge over the competition, and react and adjust to market changes more swiftly by forming a partnership.

However, professional partnerships may be challenging, and ending a toxic one can be much more painful than going through a messy divorce.

Entrepreneurs frequently seek my advice after it has already passed in my profession. In a common situation, partners are unable to communicate with one another, they are fired from their company, money is stolen, and everyone is preparing to sue each other.

Give me a concrete example so you can see what I mean. Based on my experience, a basic partnership can cost my clients anywhere from $1,500 to $7,500 when I assist them in outlining their relationship with their partners in writing before to starting. The litigation costs for clients who don't undertake this preliminary work and then retain my firm to sue their partner (or defend against a lawsuit) can be as high as ten times that amount!

My research shows that parties can avoid spending a ton of money on legal bills and have longer, more fruitful partnerships when they negotiate the parameters of their relationship in advance. I have drafted a Business Partners Questionnaire to serve as a jumping off point for prospective business partners to begin discussing potential partnerships and outlining their working relationship in paper. Contact me at sfurnari@furnarilevine.com for a complimentary copy.

Additional tips to help you and your partners avoid legal trouble are as follows.

1. Revert to First Principles

Review your business plan before you begin seeking a possible partner or determine that a partnership is unquestionably the best course of action. Determine if this course of action contributes to your company's objectives. Where do you want to take your organization? Could you reach your objectives with the support of a partnership? Does it align with your company's goals? You can't expect a partnership to miraculously fix all of your company's issues. You should address the underlying issue within your firm, not look outside of it, if you feel like your decision to partner is a defensive measure. Just because you need a partner to launch your firm doesn't mean you should get into a partnership blindly.

Two Lethal Emotions: Ego and Emotion

The deadly sins have the power to put you and your spouse in an uncomfortable position. You risk having your ego get in the way of making well-intentioned assertions and judgments when faced with a deluge of official paperwork and consequential decisions. You can take on more responsibility for your partner's decisions if you establish yourself as the company's official decision maker. Emotions are equally harmful since they can cause you to make impulsive promises or commitments or to have unrealistic expectations.

3. Remain Open to New Opportunities and Don't Say No

When entrepreneurs are short on funds, they often cease looking for a partner as soon as they locate someone who can sign a check. Until you and your prospective partner have signed an agreement, you should not commit. By proactively exploring other possibilities, you can gain a broader view of the collaboration process and inquire, "is this partnership really the best option?" Keeping your choices open allows you to weigh the pros and cons of each possibility, including forming a partnership. You can rest assured that your pick was the best one, and you won't waste time, money, and energy on the unqualified partner candidate.

Think about potential opportunity expenses as well. In a partnership, you share in the profits but also take on the risk of your partner's debts and suits. Will this truth prevent you from taking advantage of future opportunities?

4. Prepare an Outcome Plan Prior to Beginning

Keep it real. You can never predict the severity of conflict, and yet it is unavoidable. You should consider your exit strategy from the partnership before you even begin, even though it may sound cynical. Think of it as being ready for the next chance that comes your way. It is critical to decide how to divide up the assets of your company in the event that you and your partner decide to stop working together, even while you and your partner are still on good terms. In the event of an abrupt end, like a partner's death, you should also settle on a plan for the company's or partners' assets. You may keep control of your own destiny and the destiny of your company, rather than letting it be dictated by your partner, by planning an exit strategy.

5. Write Down Your Expectations From One Another

Get a plain English road map of your relationship with your spouse ready before you begin, and maybe even before you consult with a lawyer. Among the many benefits of forming a partnership are the following: the ability to work with your lawyer to draft the agreement before presenting it to your partner's lawyer; the ability to try out different relationship configurations until you find one that works for you; a better understanding of your goals for the partnership; and, most importantly, the ability to keep legal and business matters separate, allowing you to save money by avoiding lawyers' fees for the former.

Now we can go on to the following point.

6. Seek Out Legal Counsel Promptly

Seek out legal counsel right now. Share your objectives with your attorney, and they will advise you on the steps to take to achieve them. An attorney can also help you determine if your goals are practical and worthwhile. They can advise you on the best approach to take during negotiations, including when and what to ask for. Keep in mind that the opposing side's attorney is the one you need to watch out for. Before bringing in attorneys, you and your prospective spouse should have a conversation about the business aspects of your relationship.

7. Rely on Others When Necessary

When to allocate tasks is a skill that every effective leader possesses. Put other people's needs before your own. Establish open lines of communication with your staff and consultants, presuming you have already done your due diligence in selecting trustworthy individuals. If you're worried that your strategy is too optimistic, consulting with experts in the fields of law, accounting, and management might help put things in perspective. You can better grasp the operational and financial ramifications that are relevant to both sides if you have technical and expert advisors on hand.

8. Being hasty results in wasting money.

Time truly is money. However, if you try to cut corners and ignore specifics when building a partnership, you will most likely end up with delays or, worse, poor decisions. Do your best from the start because if your relationship fails, you will lose a lot more time, energy, and money.

Keep Details in Mind 9.

You have an innate ability to perceive the broader view as an entrepreneur. But in the end, it's the little things that will make your vision worth while. If you take care of these things, you'll be better prepared to weather market fluctuations, operational expenses, and even partner animosity. Prior to beginning: determine the financial, talent, and time contributions of each partner; establish the goals and expectations of each partner; determine the distribution of funds in according to the quantity and kind of the job performed; deciding on the responsibilities of each partner, including their role in managing the partnership, receiving training, and hiring staff, among other things; set goals for evaluation and devise strategies to track and evaluate progress; figure out how to handle disagreements when they arise; and consider alternative dispute resolution processes like mediation or arbitration.

9. Go With Your Instincts

With the exception of my current partner, I have made some poor choices about business partners. Two other people and I were partners in a ski resort investment property that we owned and operated. My partners were people I knew socially, and I always had a great time in their presence. Things turned heated, though, when money, emotions, power, and economic risk were all involved.

From the start, there were red flags that this business collaboration would not be a good fit. As we sat at a charming Vermont restaurant, one of our business partners had a fit over an offer we were going to make on a piece of property. This person's conclusion was deeply emotional, even if it was mathematically and logically sound to me. I got the impression that the partnership's interpersonal dynamics were not good after the outburst. The economic prospects were so good that I went ahead and did it nonetheless.

As expected, we had a strained relationship in less than a year. Fortunately, I made sure to have a solid partnership agreement with an exit strategy in place before we started. The investment paid off in the end, but it wasn't enough to cover the year's worth of legal disputes, anxiety, and time away from my practice. In the end, it cost me because I disregarded my intuition.

A marriage in business is a true collaboration. Things are wonderful while the marriage is going well, but when they aren't, watch out! Your gut feelings about a potential life mate are usually right if you feel uneasy about them.

Location:

Share :