Business partnerships are an excellent idea, according to data shared by Forbes. Partnerships boost sales revenue, foster innovations, and create new opportunities for business expansion. For instance, Microsoft gets 95% of its commercial revenue through a partner ecosystem. Even more interesting, 44% of businesses seek partnerships for new insights and innovations. Unfortunately, partnerships present a set of challenges that make them fail. A partnership will be unsuccessful because of unequal commitment between partners, lack of transparency, or the values of partners don’t align. Naturally, when such scenarios unfold partnership conflicts arise, leaving your business vulnerable. So, how do you protect your interests in a business partnership? In this article, we’ll explore why bringing in business partners with values similar to yours is crucial. You’ll also learn why writing a partnership agreement and maintaining proper accounting can protect you in a partnership.
Choose Your Partner Wisely
Think of joint ventures as marriage. Meaning? You should choose your partner carefully by taking time to get to know them. It’s obvious you want to partner with an entrepreneur or organization who shares your values, vision, and goals. They should also be trustworthy and reliable. But how do you determine if your potential business partner is a perfect fit? Do a thorough background check. This step entails reviewing your partners’ supply chain process, financial status, and work reputation.
It’s natural to wonder why due diligence is crucial before forming a partnership with other businesses? Well, building a good brand reputation takes time, but it can be lost quickly because of the actions of another party. By assessing your business partners thoroughly, you can decide if their objectives align with yours. And if their actions will affect your brand’s credibility. For instance, let’s say your customers want high-quality products delivered quickly and at affordable prices. Your ideal partner should show commitment to efficiency and delivering quality products to preserve your brand’s reputation. Your partner should also be financially stable to avoid issues like bribery and corruption that could lower your business’ integrity.
Sign A Partnership Agreement
What’s a partnership agreement and why is it important? Think of a partnership as a contract that binds you and your partners in a joint venture legally. The first thing a partnership agreement does is prevent future disputes. Naturally, partners in joint ventures will disagree about who has specific rights and roles. When there are no rules or an outline of what each partner should contribute to the business, conflicts go unresolved, resulting in business closure. Since a partnership agreement defines the rights and responsibilities of partners clearly, you and your partners can work together without problems.
Second reason you need a written agreement in your partnership is to streamline change in the joint venture. For example, let’s say a partner wants to leave. In some states, a partnership ends when one or two members exit from the venture. However, having a clause in your partnership agreement that allows remaining partners to buy shares of members who want to leave the joint venture ensures business continuity. At this point, you’re probably wondering what details a partnership agreement entails. It’s crucial to add the business name and address, purpose of partnership, member details and contributions, meetings and voting rights, and management structure.
Prioritize Proper Accounting
When you’re in a partnership, keeping your accounting and tax records up-to-date is vital. You want to protect the assets or funds you have contributed towards the success of the joint venture. So, it makes sense to know the cost of operations, liabilities and assets, and earnings. If you’re not sure how much profits the partnership earns or the assets it owns, you may be a victim of embezzlement. A business partner could find clever ways to manipulate financial transactions so they can transfer funds to their accounts. For example, they may inflate operational costs or send payments to non-existing vendors. Alternatively, they may steal property belonging to the partnership, such as office supplies or equipment for personal use or resale.
The results of embezzlement in a business setting include net losses, disruption in operations, and mistrust. When your partnership loses profits, surviving in the competitive market becomes difficult. Sometimes embezzlers overcharge customers to make extra profits for themselves. The outcome: your business gets a terrible reputation. Keeping track of accounting records helps you identify signs of embezzlement in the partnership quickly and take the right steps to safeguard your business. If you’re not good with accounting, hire a professional accountant to help enhance the accounting process.
Getting business partners to form a joint venture could be the key to boosting your revenue, promoting innovation, and tapping new markets. Something you may not like about partnerships is the high probability of getting into conflicts with other partners. And when disputes arise, the future of your business becomes jeopardized. To protect yourself from issues in business partnerships, look for the right partners. Another thing, don’t enter a partnership without a written agreement that defines each member’s role, contributions, and an exit strategy. Equally important, prioritize good bookkeeping to monitor transactions, thus preventing embezzlement.
