“Business partners are a lot like marriages,” Eileen Springer tells us at the beginning of our lunch hour conversation at our shared coworking space. “They’re important and they’re complicated.”
A business partner can make or break your success. Does your business need one? And if so, how do you choose the right one?
Last week, HAYVN members benefited from the wisdom of our coworking space colleagues, Alexis Brooks of Brooks Law and Eileen Springer, CEO and Founder of Central Park Executive Coaching. They shared insights and guidance at HAYVN Half Time, our “lunch and learn” program for small business owners and entrepreneurs.
With whom you decide to tie your business knot requires careful consideration, and that takes time. Just like you wouldn’t advise your best friend to marry the person they met at the bar last night, it’s important to “date” a potential business partner.
“Haven’t we all experienced that first date that goes perfectly, but the moment you meet their friends you realize it’s a no-go,” Eileen asked? “Or that roommate who appears considerate and clean the first week, but turns out to be a slob?”
How do you prevent such a catastrophe from striking? How do you avoid a messy business divorce? Eileen and Alexis are adamant about one thing: Start with the fundamentals. Ask questions, make a plan and delineate rules from the very beginning.
How To Pick A Business Partner
Eileen suggests backing up even further and ask if you really want or need a partner at all. If you decide to move forward with a partnership, get strategic.
Eileen suggests 12 characteristics to consider when you select a business partner:
For example, what does “fiscal responsibility” really mean? Will you and your partner adhere to budgets? How do you approach debt versus . equity? Do you define them the same way?
Also, consider resiliency. How will you know if your potential business partner is resilient if you haven’t yet gone through any tough times together?
What if you’re compatible in most areas, but not in one or two key parts of your relationship? Are you ignoring your intuition in order to force the partnership to work?
Eileen’s presentation dove deeply into all of these issues, and she explained all of the ins-and-outs of each item on the list. Watch the replay for these juicy tidbits.
The Legal Perspective
During the second part of the presentation, Alexis focused on the various types of partnerships and liability exposure and the importance of planning for the full life cycle of a partnership.
The legal definition of a partnership relationship is an association of persons who have capacity to contract to carry on as co-owners of a business for profit. Regardless of whether you purposefully form an entity, if the relationship fits the legal definition of a partnership, then partners can be jointly and severally liable to one another.
In other words, one partner’s acts can result in liability for the others. Therefore, depending on the relationship and the type of goods and services being sold, business partners may wish to limit their liability by choosing and forming an entity that provides more protections.
In particular, in a General Partnership, management powers and liabilities are shared equally among the general partners while in a Limited Partnership, the general partner(s) have management power and more liability while limited partner(s) do not have management powers and limited liability. Limited Liability Companies also offer added personal protections to business partners — or members, as they are called in LLC’s.
Alexis also reminds us that there is no such thing as a perfect person or a perfect partner, that conflict is inevitable, and that partnerships inevitably end. Therefore, memorializing the terms of your partnership by drafting an agreement at the beginning of your relationship is advisable. It is optimal to iron out operational details, document contributions, set protocols to handle difficult situations and differences in opinion, and formalize an exit plan for when the relationship breaks down or it’s time for it to end.
Eight Things to Discuss with a Potential Partner
To minimize conflicts and optimize the terms between business partners, Alexis outlines the key topics to review at the beginning of a partnership relationship. Here are the basics:
Like Eileen, Alexis also discusses the ins-and-outs of the list clearly and concisely in her presentation.
Consulting with a lawyer, Alexis says, will help smooth the path as you move forward. The key takeaway from all of this: Educate yourself on ways to limit your liability and plan for the full life cycle of a partnership from the outset.
What Our Members Want to Know
Their insightful presentation ends with a question and answers session from our HAYVN members. Some examples are:
- How much time should you take to get to know your potential partner before jumping into business together?
- Would it be possible to use a “strength finder” test to determine compatibility?
- Is there a preferable state to align yourself with where business laws are easier?
Eileen and Alexis answer these questions, and more.
We couldn’t have asked for a more timely and educational presentation. With so many entrepreneurial ventures underway at HAYVN, we’re curious to see how this discussion impacts our members’ business decisions moving forward.
Founded in 2018, HAYVN is a flexible workspace for enterprising women (and men) to connect, create and grow. Along with a vibrant & engaged coworking community of entrepreneurs, HAYVN is a business HUB, offering short- and long-term office space leases, meeting rooms rentals, and events to support local businesses. Visit our beautiful safe ‘HAYVN’ at 320 Boston Post Road, Darien, CT, 06820.