Building a Successful Partnership

Going into business with someone else requires more than just sharing good ideas. For a partnership to succeed, partners must make mutual decisions about the business’s structure, financing and conflict resolution.

On the Same Page?

As a first step, you and your partner should discuss your visions for the business. This might include a timeline for growth and potential changes in the business over time. Shifting goals and priorities may result in the need to restructure responsibilities and compensation in the future.

Where Will the Money Come From?

Partners should discuss sources of funding for the business, as well as strategies for raising money in the future. While taking out a business loan may be a viable option, both partners must agree to it. In some instances, one partner may have the personal resources to make a loan to the business. Partners should decide on the terms and draw up an agreement for repayment.

Choosing a Business Structure

Review the possible options for structuring your business. An LLC, S corporation and C corporation all have advantages and disadvantages. Your tax and legal professionals can help determine the best business structure for your situation. Also consider whether your business will be structured so that partners share expenses equally, while profits are divided based on each partner’s contributions.

What if Partners Disagree?

Differences of opinion are bound to occur, so consider having a plan for resolving disagreements. You may decide to designate one partner to make the final decision. Or you may want each partner to have final say in their area of expertise and then come together to make all major financial decisions.

Make Sure You’re Covered

Partners should invest in an umbrella insurance policy that includes liability, property and casualty coverage. Coverage for errors and omissions also protects you against claims of mistakes in professional services. Key person life insurance typically is purchased on the life of the owner(s) or another critical employee. The company is the beneficiary and uses the proceeds to cover the costs of hiring and training a replacement for the deceased person or to pay off debts and close the business.