You may be looking for a way to help grow your business or to answer current business needs. A strategic business partnership may help you do that. A successful business partnership can yield many benefits, such as sharing the expenses and responsibilities of operating a business. But, a business partnership may also carry some risks and liabilities.
Is a business partnership right for you? Knowing the pros and cons of a business partnership is a crucial step to take before taking the leap.
The following pointers may help when it comes to considering the advantages and disadvantages of a business partnership.
Advantages of a Partnership
1. Bridging the Gap in Expertise and Knowledge
Partnering with someone can give you access to a broader range of expertise for different parts of your business. A good business partner may also bring extra knowledge and experience or complementary skills to help you grow the business.
For example, you may be great at generating new ideas but could be better at selling these concepts. You may be a technology whiz but a fish out of water when building relationships and taking care of operations. That's where a business partner with skill and acumen can step in and fill those gaps.
2. Additional Capital
A prospective business partner can bring an infusion of cash into the business. The person may also have more strategic connections than you do. This may help your company attract potential investors and raise more capital to grow your business.
3. Cost Savings
Having a business partner can allow you to share the financial burden for expenses and capital expenditures needed to run the business. This could help your business grow more quickly and be more competitive.
4. More Business Opportunities
One of the advantages of having a business partner is sharing the labor. Having a business partner may make you more productive and afford you the ease and flexibility to pursue more business opportunities. These can include:
- Expanding the range of your offerings,
- Attracting more investors to your company and
- A chance to launch a new rebranding.
A partnership might even eliminate the downside of opportunity costs--. which are the potential advantages or business opportunities you may be forced to let go of because you don't have the bandwidth to focus on them.
5. Responsibilities Can Be Shared
By sharing the labor, a business partner may also lighten the load. It may allow you to take time off when needed, knowing there's a trusted person to hold down the fort. This can also have a positive impact on your work-life balance.
6. Emotional Support
Everyone needs to be able to bounce ideas around or debrief on important issues. Operating a business can be stressful, and it can help to have a partner who is there when things don't go well.
At other times, a partner can satisfy the need to celebrate after achieving a goal. A trusted business partner can be a valued business companion.
7. New Perspective
It's easy to have blind spots about how we conduct our business. A business partnership can bring in a set of new eyes that can help spot what may have missed. It may help adopt a new perspective or gain a different outlook about who to deal with, what markets to pursue and even how to price products and services.
A partner can be a source of inspiration to move beyond the status quo and explore new possibilities.
Disadvantages of a Partnership
1. Shared Liability
In addition to sharing profits and assets, a business partnership entails sharing any business losses and responsibility for any debts, even if the other business partner incurs them. This can place a burden on your personal finances and assets. You may be responsible for decisions your business partner makes about the business.
2. Loss of Autonomy
While you likely enjoy total control of your business, you would now share control with a partner in a business partnership, and important decisions would be made jointly.
When you start exploring the advantages and disadvantages of a business partnership, ask yourself this: can you compromise and relinquish certain ways of doing business if you have to? If you've worked on your own for a long time and are used to being independent, you may find it stressful when you can't continue doing things your way. This may require a change in mindset, which may not be easily maintained over the long haul.
3. Potential Conflict Between Business Partners
Many issues can surface that may make working with a business partner difficult. For example, conflicts can arise from differences of opinion or unequal effort put into the business. One partner may not pull their weight. Relationships can sour.
But you may be able to prevent emotional problems by carefully choosing who you partner with, looking for someone who shares your vision, has values similar to yours, has the same work ethic and where the chemistry is right. This can go a long way toward preventing unexpected problems.
4. Exit Strategy Complications
You or your business partner may wish to sell the business as circumstances change. This could present difficulties if one of the partners isn't interested in selling.
You can deal with such an eventuality by including an exit strategy in the business partnership agreement. For example, you may include "a right of first refusal" if your partner decides to sell their business interest to a third party. This ensures that you retain the right to accept the offer, thus preventing a stranger from joining the business. An exit strategy can address many other issues, such as a partner's bankruptcy, disability or desire to move out of the country.
5. Lack of Stability
When balancing the advantages and disadvantages of a business partnership, you also need to consider if you can cope with unpredictability. Even if you have a solid exit strategy in your partnership agreement, the change triggered by a partner's situation can cause instability in the business. Is riding the wave of instability one of your strengths?
The Takeaway
In analyzing some of the pros and cons of a business partnership, you may conclude that the advantages outweigh the disadvantages. What's more, some of the disadvantages of a partnership may be overcome with due diligence, proper investigation and a detailed, written business prenup.
Ultimately, make sure that you're comfortable in a business partner role. Ask yourself what growth goals a business partnership can help you achieve that you could not do alone. What expertise can you attract in a business partner that may be a competitive differentiator?
Carefully evaluate all the advantages and disadvantages of a business partnership in relation to your financial situation and mindset. Above all, take your time to assess your prospective business partner to ensure they are a good match. A business partnership is a marriage. And as with any long-lasting marriage, it's based on finding the right person, someone you trust, and enjoying being together within four walls.
Key Questions When Considering a Business Partnership
What are the advantages and disadvantages of a business partnership?
Some advantages of a business partnership include:
- The chance to bridge the gap in expertise and knowledge
- The potential for more cash
- Greater borrowing capacity
- A reduction in costs
- More business opportunities
- A better work-life balance
- Emotional support
- Help with making decisions
- A new perspective
- Potential tax benefits
- Growing your network
- Less paperwork in setting up the partnership
On the other hand, the disadvantages of a business partnership include:
- Potential liabilities
- A loss of autonomy
- Emotional issues
- Conflict and disagreements
- Future selling complications
- A lack of stability
- Higher taxes
- Splitting profits
Sometimes business partnerships can be complicated. Be sure to check out: How to Collaborate With a Business Partner for helpful tips and strategies towards a successful business partnership.
A version of this article was originally published on March 15, 2018.
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