Entering into a business partnership can be life-changing in a positive way, but also a negative way. Too often, there are big problems that arise down the road because business partners don’t do their due diligence on one another, or they ignore red flags.
A strong business partnership can mean that the two of you bring together complementary skills and backgrounds to improve the success of your business. A business partner may also bring financial benefits to the situation. However, a business partnership can quickly turn sour without the necessary steps being taken upfront.
The following are things to know and do before you go into business with someone.
Always do a comprehensive business partner background check. Do a background check to ensure that the person you’re thinking about going into business with isn’t just trying to sell you the best version of themselves.
This gives you a good starting point to vet the relationship.
Some of the things you can look at in a background check include financial circumstances that could impact your partner’s ability to contribute to the business in the way they say they will. For example, red flags or deal breakers might include bankruptcy, poor credit, or a possible lawsuit.
You’ll also have to look at the ethical components of a person’s background, and whether or not they’ve ever been involved in criminal proceedings or tax-related issues. These could very easily impact a business if you were to start a partnership.
Beyond background checks, do some of your own research too. Look around on social media, and do online searches to see what comes up.
Have a Talk About What You Both Want
As funny as it may sound, in many ways, a business partnership is like a marriage. Before you get married you should both be clear on what you want and expect of the relationship, and you need to have the same kind of conversation with a potential business partner.
You need to make sure you’re on the same page in the short- and long-term.
Along with talking about where you see yourselves, your goals, and your passions, you’ll need to talk about how the money will be dealt with upfront too.
You’ll have to consider how you’ll value what each of you brings to the partnership and how you need to be paid or how long you can go in the business without being paid.
You’re going to have to assess, specifically, what a small business partner might be able to bring to your business that you wouldn’t have on your own. Is what they bring going to be worth the complications that can come with a business partner?
Check for Personality Compatibility
There are different ways you can assess personality compatibility. There are formal assessments that you can have administered and then reviewed by a third-party professional.
If one of you already has a business, you might also want to work together for a period of time and see how it goes and how compatible you are.
What Are the Downsides of a Business Partner?
Even if you have someone that you think would make for a great business partner, you still need to manage your own expectations by having a clear understanding of what the possible downsides of a partnership are.
The pros, along with the possible financial elements, including the fact that you’ll have more expertise and more will be able to be accomplished. You’ll also have a different perspective that you can consider and weigh before you make any decisions.
There’s a support system that comes with a partner too.
Now, what about the downsides?
If you’re a very independent person, you’re going to be giving up power and decision-making. Even if you have similar ideas on where you want the business to go, you might have different life philosophies, and you might see different paths to getting there.
It’s also just more complex and limiting to have to make decisions when there are two people involved. Every decision could be potentially more cumbersome, and it might remove some of your business agility.
These are all things that only you can weigh and decide what’s right for your business, but regardless of doing the necessary research, including a background check into the person you’re thinking about working with is essential. You should also ensure you have a clear exit plan in place if you do partner with someone.