By Veronica Saldivar
When a business partnership goes well, it can be the best gift, especially if you’re a team player. Because let’s face it, being an entrepreneur is hard work -- some of the hardest work I’ve ever done, in fact. Why go it alone when you can have a partner?
But before you "get hitched" with a business partner, think twice and ask questions. Because when a business partnership goes bad, it can become your worst nightmare. After the honeymoon period is over, you get to know who your business partner really is. If you're past the honeymoon phase and it’s still bliss, good for you! If not, I certainly feel for you.
If you are considering a partnership, read on.
1. "Date" before you get married. Make sure you work on a few smaller projects to clearly identify strengths and weakness as individuals and as partners before you take the leap. You don’t really know someone until you have been through difficult times. So, jumping in without an extended period of due diligence is not a wise choice.
2. Ask the hard questions. These might include:
- Have you ever filed for bankruptcy?
- Have you ever been involved in a lawsuit? If yes, why?
- Do you have any current lawsuits?
- What is your credit score? If it’s low, what happened?
- How much money do you have saved?
- At what point will you need to take a salary to cover your personal expenses?
- Will you need to get your invested funds repaid right away or can you reinvest back into the company?
- What is the end goal or exit strategy? Sell, or grow to add staff to run the day to day?
3. Discuss the intangibles. Compare intangible items, such as core values (i.e. honesty), what they consider to be a healthy workweek, and what is considered too much.
4. Do your research. Pay for a background check and do your due diligence by checking references. In case the hard questions you have asked are not answered honestly, you will be able to use the background check to make sure the story matches.
5. Be legally prepared. Make sure to have an attorney draft a document outlining the terms of the partnership, including options to exit the business and buyouts. Also, consider what will happen if your business partner becomes incapacitated or passes away.
6. Find someone complementary. Partner with someone who fills the gaps in your skill set. To do this, you will need to take an inventory of your personal skill set, and your strengths and weaknesses.
7. Understand their financial perspective. In a business partnership, finances will be at the heart of your business. Choosing someone with a solid financial background is crucial. A basic level of financial literacy is important. Asking the hard questions listed above will help prevent any surprises.
If you find yourself in a bad partnership, have an honest and direct conversation about how to improve the relationship. Consult with a business coach or mental health professional who can help you both get back on track. If you have tried to make improvements but can’t seem to come to a resolution, get out of the partnership. It might be difficult and scary, but it will be better for both parties in the long run.
Veronica Saldivar, MBA is a successful entrepreneur, investor and asset manager for an extensive portfolio of commercial real estate.