- A business partnership gives you someone with whom you can share the pressures of running your business.
- Advantages of forming a business partnership include augmenting your skills and shared contacts and capital.
- Look before you leap. Carefully consider the disadvantages of taking on a partner before doing so.
The daily grind of running a construction company may prompt you to think about forming a business partnership. You might even have a potential partner in mind. The potential synergy of joining forces with another like-minded professional may seem like a clear advantage, but bringing on a business partner isn’t for everyone.
You’d be wise to consider the following advantages and disadvantages before saying “I do” to a business partnership.
Pros of Forming a Business Partnership
The ideal partner offers you a variety of benefits that you can’t get when going solo. Here are the top pros of taking on a partner.
- Additional support. Partnerships allow for a division of labor. It’s no longer just you taking on all of the higher level decisions and responsibilities. It can be a great relief, especially if your company is growing and your workload is constantly increasing. There’s definitely strength in unity.
- Expansion potential. Bring on a partner with skills and contacts in other areas. This allows you to more easily grow your business and to expand into new areas without hiring additional staff or incurring more overhead.
- Augments your skills and experience. ‘Strength in numbers’ isn’t just a cliché. Most likely, the business partner you take on will have skills that you don’t and vice versa. This makes for valuable collaborative opportunities—and, as a unit, makes you more attractive to customers. Merge all of your skills, and you can compete for bigger and better jobs more easily.
- May provide funding. Although taking on a partner just because you need money isn’t advised, this could be one of the reasons to form a partnership. A partner may bring additional capital to the table.
If you find that funding is your only requirement to successfully run your business, you might be better off finding an investor rather than a full partner.
A 50-50 partnership usually means equal profit sharing—which can cause problems if one partner feels the other isn’t pulling his or her weight.
Disadvantages of Forming a Business Partnership
Like in any union, there are bound to be problems between partners. Here are some of the most common ones.
- Disagreements. While ideally you and your partner agree on the business direction and key decisions about running the company, you’re going to clash once in a while. Occasional minor disagreements are to be expected—but frequent major disagreements can wreak havoc on the company.
- Shared liability. Partnerships feature unlimited liability. This means that you share the liabilities and financial risks of owning and running the business. If, for example, your partner does something negligent, you’re both on the hook. (Luckily, the liability can be somewhat countered by forming a limited liability partnership.)
- Shared profit. Generally, a 50-50 partnership means profit sharing. That can cause problems if one of the partners feels that the other isn’t putting his or her fair share into running and managing the business.
- Reduced authority. If you take on a partner, you introduce another boss to your employees. This generally means that you must make decisions together, which may cause some initial confusion in the workforce.
Is a 50-50 Partnership in Your Best Interest?
If you decide to bring on a business partner, your next step is deciding how you’ll set up the business in terms of ownership. Some partners choose to split the business responsibilities and assets 50-50. Other situations are different.
At the father-son owned national HVAC company Service-Tech Corporation, the partners decided to leave the majority ownership to Paul Keller Sr. and make Paul Keller Jr. a minority owner.
“After weighing the pros and cons, we agreed it would be a far more efficient process with my father as majority partner, overseeing projects and financial activities,” explains Paul Keller Jr. “While we often collaborate, the decision-making process runs more smoothly when one person has the final say. Another advantage is there is no confusion among our employees and vendors as to who is ultimately in charge.”
However you decide to pursue a business partnership, keep in mind that it is a serious decision. Once formed, it’s expensive and labor-intensive to dissolve a partnership, so be sure before you tie the knot.