Don’t Enter a Business Partnership Until You’ve Answered These Five Questions

In many ways, entering a business partnership can be compared to entering a marriage. There’s an intense level of trust and commitment required from the people involved, and the relationship takes ongoing work and attention in order to thrive.

Which means that, just as you would consider many factors carefully before getting married, so should you focus on some key issues before entering a partnership. Here are 5 questions that must be answered before you commit.

1, Do we have the same expectations for the business long-term?

Have you discussed your goals and vision for the business over the next few years? What about over the next decade? Given that your long-term vision for what the company should become will impact nearly every decision you make, it’s crucial that your partner have the same general vision from the outset.

On a more day-to-day level, are you on the same page about what tasks you’ll handle in pursuit of these goals, and how you’ll divide the labor? Are you each aware of your own, and the other’s strengths and weaknesses when it comes to working towards these long-term goals? Planning tasks and priorities focused on growth may sound laborious, but a few hours of whiteboarding and hammering out specifics now can save countless time and money down the line.

2, Will we have equal power over business decisions?

Any business requires decision making, both on a micro and macro scale. Which colors should we use in the logo? Which new product should we offer? Which of the two top contenders for a new role should we hire? Given the breadth of decisions that will need to be made in the course of running a business, it’s nearly a given that you and your partner will disagree, no matter how strong your problem-solving skills.

So how will these situations be resolved? Will one partner have veto power? If so, is the other partner willing to give up his or her decision-making power? Each partner needs a full picture of how conflicts and differences of opinion will be handled prior to entering the partnership, to set expectations and create a context for smooth handling when the inevitable disagreements arise.

3. Do we both have the same commitment to the business?

Running a small business is not a part-time endeavor. Do both you and your partner have equal expectations of the commitment and dedication involved? And likewise, do you both have the same attitudes about the role that work plays in your life? If you haven’t taken a vacation in three years while your potential partner takes six weeks off every summer, you’ll have some work to do when it comes to merging schedules and dividing the workload equally.

4. Do we share the same financial goals?

As with any partnership, you and your business partner are going to have to get personal. How he or she spends money, in both his or her personal and professional life, matters. Assessing every line of a potential partner’s tax returns isn’t necessary, but it’s important to have a sense of his or her financial situation, and goals. Does she pay every bill on time? Or is she more fast and loose with any spare cash? Is she in credit card debt? Looking to drive new cars and buy vacation homes at the first opportunity? Or build a stable financial profile over time?

Granted, there are no hard and fast rules for what behaviors do and don’t work in a potential partner — it simply matters that you’re both on the same page. Certain factors, such as heavy debt, poor credit, and over-budget spending, may be red flags when it comes to trusting someone with the future of your business.

5. What happens if we want to break up?

Going back to the marriage analogy, it could be useful to think of your pre-partnership negotiations as a pre-nup — they exist to protect your interests, and the business itself, should the partnership go south. There’s simply no way to predict the future, with any partnership. It could be that in a few years, one partner decides to move on to another venture, or simply burns out — or you could reach a deadlock over a decision to expand or change the business, and dissolving the partnership will be the only way to break it.

No matter the reason for an eventual break-up, it’s critical that both partners have clear expectations for a process that will be used to bring the partnership to an end. It could be a buy-out, or a triggered dissolution. Consulting with an attorney will help you structure a dissolution as part of your partnership agreement, so that all parties are treated fairly and according to plan should a break-up become necessary.

It’s important to remember that you’re becoming partners because you feel there is great value in working together. But with any partnership, be it business or no, you’ll want to plan for the future with an open mind and an assurance that, no matter what happens, you and your business are protected.