Starting a business can mean traveling some rugged terrain. Whether you’re planning to run an aggressive race in a high-stakes market or just turn a hobby into a profitable home-based venture, your basic business survival kit should be equipped with capital, customers, common business sense and a competitive edge. In many cases, it’s smart to travel with a partner or two who can help shoulder the load or add whatever you’re missing.
Plainly put, a partnership is a business where two or more people agree to share the profits. When partners click, the results can be spectacular; when a partnership goes sour, it can be a real kick in the assets.
There’s only one way to go about partnering, say those who know, and that’s very carefully.
Picking the right person or people to go into business with is just part of the process. You must also choose the legal form of partnership that will work best for you and your company, set up criteria that will enable you to work productively together and establish protective measures that will help you part peacefully when and if the time comes.
KNOW THY PARTNER
Eric Dawson, an art director at Prentice Hall in Ramsey, New Jersey, has been thinking about going into business on the side with childhood friend Bruce Jackson. Their plan is to purchase commercial real estate and rent it out. “Whatever venture we ultimately decide on, we will probably structure our partnership so that I put up most of the money for the down payment,” says Dawson, who has known Jackson for 30 years. “Bruce, who came up with the idea to partner, could pay me back from his share of the profits over time, or agree to handle most of the management of the property.”
Dawson feels that his friend’s trustworthiness and willingness to work make him a good bet as a partner.
Maybe. But to be on the safe side, Dawson should do a little more homework, according to business experts.
Partnering with friends or relatives can work well if you remember one thing: know who you’re going into business with. “No matter who the person is, check out the background thoroughly before you take him or her on as a partner,” says corporate and business attorney Robert Taylor of East Orange, New Jersey. “That goes for your brother-in-law, your best friend, even your spouse.”
He advises running background checks on a potential partner’s credit history, arrest record, marital or other personal relationships, tax history and past business relationships, if any.
For instance, find out how the person manages personal assets and how they’re set up. Is the person a responsible money manager? Does she or he owe any back taxes? Has the person ever filed for bankruptcy? Are there liens on his property? A partner’s poor credit can prevent your company from obtaining loans and lines of credit. Ask the prospective partner for permission to check into his or her financial past, including obtaining a credit report from Experian, Equifax or any of the other