5 Steps to Building a Successful Small Business Partnership

Starting a business can be an exciting and challenging experience, a new beginning for those who are ready for new adventures.

Likewise, starting a small business partnership can be an ideal way to leverage skills, capital, and other resources while mitigating some of the risks involved in launching your own company, including using life insurance for business partners.

There are many benefits to starting a small business partnership as well as risks you should understand before taking this step.

However, if you feel confident that partnering up is the right move for you at this point in your career and business plan, here are five steps to building a successful partnership with another entrepreneur.

#1 – Know Your Reasons for Starting a Partnership

Before you rush into a partnership, make sure you’re doing it for the right reasons.

Partnerships should be based on trust, common goals, complementary skills, and the ability to work together.

Most business partnerships fall into one of two categories:

Joint ventures, where two companies combine resources to create a new product or service.
Partnerships, where two or more people come together to run a company.

Understanding which type of partnership you want to start will help you decide who you’d like to do business with.

#2 – Identify Potential Partners: Building Options & Gathering Information

Before you commit to a partnership, you should make an effort to find potential partners.

Attending networking events where entrepreneurs gather may be a good place to start. You can also try to approach people through social media, a great way to get to know people without putting yourself in a vulnerable position.

Once you’ve identified a few potential partners, focus on building relationships with them before approaching them about starting a partnership.

You’ll want to make sure you have a good understanding of their strengths, weaknesses, and overall goals before taking the next step.

You’ll also want to identify any potential red flags: Are your personalities compatible? What’s their own business history like? Gather as much information as possible before moving forward.

Set Reasonable and Clear Expectations and Rules

Partnerships are tricky, because you’ll be working closely with another person or group of people.

You’ll have your great days, and then those days when you want to strangle each other, but overall, you want to maintain a positive and professional relationship.

But have no fear: There are several ways you can set expectations and rules when it comes to managing your partnership.

The first step is to clearly determine what the roles and responsibilities will be in your partnership. You’ll also want to determine how you’ll manage conflict and your exit strategy for the partnership, as well as address issues such as communication, payment schedules, equity, and other aspects of your partnership.

A partnership agreement is not legally binding, but it will help you clarify expectations and rules, avoid misunderstandings, and serve as a reminder of what is expected of every member.

#3 – Understand the Types of Business Partnerships

There are many different types of partnership agreements you can use to structure your business relationship.

While there are many different types, the most common are general partnerships, limited partnerships, limited liability partnerships, joint ventures, and co-ownership.

A general partnership is the simplest type of partnership, which means that all partners are personally liable for the debts of the business.
A limited partnership has some characteristics of a corporation: One partner is the general partner who controls the company and assumes unlimited liability, and the other partner is an investor who is not involved in the day-to-day activities.
In a joint venture, there are no partners, but two companies work together on a short-term project.

Finally, in a limited liability partnership, one or more partners are general partners who assume unlimited liability and one or more partners are limited partners who do not participate in the management of the company.

#4 – Creating a Legal Partnership

If you decide to go the legal route, there are some steps you can take to protect your interests and make sure the partnership is structured correctly.

The first step is to create an operating agreement for your business, which will include an overview of the company’s goals, structure, and management. You’ll also want to lay out how ownership will be distributed among partners and how decisions will be made.

Next, you will need to follow your state’s specific laws regarding how to form a partnership. Each state’s process is different, so be sure to do your research.

Insurance Needed for a Business Partnership

One of the most important aspects of partnering up is making sure your business is properly insured. Insurance protects you against loss, like a fire in your facility or product liability claims.

You should review your insurance to make sure it covers your current and future needs.

Once you have a partner, you want to make sure you have adequate coverage in the event that something happens.

Here are some insurance coverage options to consider:

General Liability Insurance: This will protect you against claims of bodily injury or property damage that are the result of your work.
Product Liability Insurance: This will protect you against claims of bodily injury or property damage that are the result of your product.
Business Owner’s Policy: This is a combination of the above policies and is the recommended way to go.

These are just some of the types of commercial insurance policies available for your partnership. An insurance specialist can guide you through your business’s unique risks and vulnerabilities.

#5 – Writing an Operating Agreement

A good operating agreement is the key to a successful partnership. It will clarify the expectations, responsibilities, and roles of each partner in writing.

You can create an operating agreement in a few different ways. You can write an agreement from scratch, or you can use a sample agreement and adjust it for your business.

This agreement can be included in the partnership agreement or can be a stand-alone document. It should include information such as the names of the partners, the purpose of the partnership, how the business will be financed, deliverables, management structure, profit and loss sharing, exit strategy, and miscellaneous items.