|Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.|
5 Things to Know Before Taking on a Partner
You can’t choose your family, but you can choose your business partners, and it’s the latter that can have the most significant consequence on your financial future. Among the leading causes of business failures are business partnerships that have gone bad. Choosing a business partner is equivalent to choosing a person to become part of your family because if you can’t trust someone to take care of your children, you certainly can’t trust them to take care of your business.
Here are five things to know before going into business with someone:
Character: There is nothing more important than a person’s true character.
Integrity, reliability, loyalty, unselfishness, broad-mindedness, and forward-looking are among the most essential traits a person should possess to be considered a leader and a solid partner.
As part of a detailed background check that includes a person’s financial and business background, it is essential to gather evidence of their character through interviews with friends, family, and former colleagues.
Shared Vision: Without a shared vision, there are bound to be disagreements on the direction the business should take, which ultimately leads to struggles over basic policy and operation decisions. Two or more partners must be able to articulate a single vision for the company and agree on the minutest details of the business’s mission, values, and goals before there is any chance of a successful business relationship. Prospective partners should spend as much time as possible discussing and agreeing on these critical aspects of their business before proceeding.
Complementary Skills and Expertise: Partnering with someone in a business venture is about bringing something to the business that you alone cannot provide, such as some essential skill or expertise that you couldn’t otherwise acquire or outsource.
Business Track Record: Your background check will uncover a lot of information about your prospective partner’s business background. The real story, however, lies in their actual track record for achieving results. It is important to verify their track record and their business achievements.
Financial Stability: When two or more people become co-owners in a business, their personal finances are scrutinized when the business needs to obtain credit.
Also, if a co-owner gets into financial trouble, unless there are adequate protections in place, the business is vulnerable to creditors and bankruptcy actions. It should go without saying that you should never go into business with someone with questionable finances.
These factors are not mutually exclusive. All should be carefully investigated, and a prospective partner should be able to meet all of the criteria. A hole in any of these should be a major red flag.
When a match is found, the partnership should be formally structured to include a legal, written agreement that states how either partner may leave the relationship. Management roles and responsibilities for each partner need to be clearly defined along with methods of accountability. A business plan with company goals, objectives, and strategies must have the strength to guide day-to-day policy and operational decisions and managing partners must agree to frequent reviews of the plan to assess its progress.
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