A business partnership is a highly effective way to maximize professional resources and achieve success. Here’s a look at how you can determine whether forming one is the right move for your business.
Sometimes, two (or more) heads really are better than one, including when it comes to business. Partnering up with another entrepreneur or company can potentially double your resource pool. It can also make it easier to achieve and maintain business agility in an ever-changing digital world.
But what is a partnership business, and is it right for you? Here, we’ll go over what to know before entering into a business partnership of your own.
Understanding Business Partnerships
In a nutshell, the term “business partnership” describes any professional entity comprising at least two individuals or companies. However, as with any other partnership, choosing the right partners is crucial, as up to 80 percent of business partnerships fail.
Types of Business Partnerships Explained
Generally speaking, there are three different types of business partnerships to consider:
- General partnerships are easy to create and begin as soon as business activities do
- Limited partnerships involve at least one general partner with unlimited liability.
- Limited liability partnerships are an option for certain types of professionals (such as lawyers, doctors, or accountants)
In addition to the above examples of partnership businesses, some states also recognize the existence of limited liability limited partnerships.
Pros and Cons of Partnership Businesses
The advantages of a partnership business include the ability to pool resources, including financial resources. Different partners also often bring different skill sets, expertise, and strengths to the table.
However, partners must also split the profits their shared business brings in. It can also be difficult for many partners to agree on decisions, reconcile differing viewpoints, and cope with the lack of total autonomy.
Key Steps in Forming a Successful Business Partnership
Choosing the right people or businesses to partner with is the most crucial step in forming a solid partnership. Once that’s done, you need to have a partnership agreement drawn up, register the name of your shared business with your state or region, and obtain any necessary licenses.
It’s also crucial to define your shared business goals, build a plan for success, and get your ducks in a row financially with elements like a business bank account and thorough knowledge of tax obligations.
Crucial Questions to Ask Before Entering a Partnership
A business partnership is more like a marriage in that you and your partners will become extremely important parts of one another’s lives and futures. Questions to ask before moving forward include:
- Do we share the same values?
- Do we trust one another?
- Are we on the same page about individual responsibilities, finances, etc.?
- Do our communication styles and methods for dealing with conflict work well together?
Tax Implications in Business Partnerships
Each business partner involved in a partnership-style business is responsible for reporting personal losses or profits on their tax returns. The partnership itself does not pay income taxes. However, the fact that partnerships are pass-through entities means they qualify for a tax deduction (usually 20 percent).
Top Examples of Successful Business Partnerships
Some of the world’s most successful examples of partnership businesses are household names, including Ben Cohen and Jerry Greenfield (of Ben & Jerry’s) and Bill Hewett and Dave Packard (of Hewlett Packard).
There are also numerous examples of companies successfully partnering up on individual projects, including Nike and Apple, Uber and Spotify, and Louis Vuitton and BMW.
Overcoming Challenges in Partnership Ventures
Even the most successful business partnerships will see their share of challenges sooner or later. One way to minimize potential fallout is to establish a formal process for resolving disputes right out of the gate.
A solid business plan is also a must. Ensure everyone agrees on key factors like revenue, profits, and long-term goals before going into business together.
LLC vs. Partnership: Choosing the Right Structure
A limited liability company (or LLC) is considered its own legal entity, separate from any of its partners. However, a partnership is not. Which represents the right option for you and your potential business partners is largely a personal preference, but factors to consider would include the following:
- Partnerships are easier to set up and run than an LLC
- The owners of an LLC are typically not personally liable for issues like business debts or legal problems
- The IRS considers partnerships to be taxing entities but not LLCs
The Role of Trust and Communication in Partnerships
Just as two people entering a marriage union need to communicate well and trust one another, so do two or more people forming a business partnership.
Open, honest communication is a crucial part of brainstorming great ideas, hashing out concerns, etc. The same goes for creating shared values, long-term business goals, and strategies for success. Success is only possible when everyone involved knows they can truly count on one another.
Exiting a Business Partnership: Best Practices
Just as you want to ensure you cover all your legal bases when you form a partnership, you also want to do the same when exiting one.
- Review state or regional requirements for dissolving partnerships and prepare formal dissolution papers
- Notify any parties who need to know about the dissolution
- Divide up any remaining assets and close any necessary financial accounts
- Meet with a partnership attorney who can help mediate and ensure everything’s done properly
Elevating Business Growth Through Effective Partnerships
Trust, honesty, and total transparency are truly the keys to any successful partnership, including any professional or business partnership. In addition to facilitating and nurturing those things, it’s crucial to:
- Set and maintain realistic goals that serve each partner’s purposes
- Work together, taking care to leverage each person’s unique strengths and skills
- Know and respect your collective and individual limitations
- Hold each other (and yourselves) accountable
It’s also a good idea to work smarter, as opposed to harder, by integrating the right tools and business solutions into your collective workflow. This includes in regards to content creation and management.
For example, ION can take the guesswork and hassle out of creating stunning interactive content that engages target audiences and yields incredible results without the need to write a single line of code. Explore ION today, and prepare to take your business to the next level!
