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What Is Business And Partnership Planning?

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Partnerships. They are supposed to make a business stronger and expand faster. However, if a business falls on hard times, some partnerships can end up falling apart under pressure.

Not many business partnerships survive in general. About 80% of those partnerships end up failing.

One reason those business partnerships failed is that they lacked partnership planning. This means that the partners did not lay out clear ground rules for what each person was going to provide and did not have a plan of attack in case things went wrong.

So, what business plan is most effective for this situation? How do you ensure that your partnership does not end up like the 80% that fail?

This is your guide.

Know What Your Partner Offers

The first thing that you need to figure out is what each partner brings to the table. You could have one partner that is exceptional with numbers and knows how to run an accounting book like the back of their hand.

Then, you might have another partner that knows how to manage and communicate with people better than others. This might be the person that you want to talk to employees or high-priority clients.

One of the most important investors of all could be an angel investor. This would be considered the partner that is giving the original owner a large amount of money to expand their business quickly. However, that partner may only be offering the money and nothing more to contribute to the business.

You need to go over these terms in advance of forming a new partnership with someone for your business. This will help you avoid disagreements with your new partner because you will have clearly communicated what each of you is responsible for before the partnership was agreed upon.

It can also help partners decide what each of them will be responsible for if something was not thought of in advance.

Decide How to Handle Disagreements 

With more than one partner owning a company, there may come times when those partners disagree about an issue within the company. This can lead to heated arguments and even controversy if there is not a plan of attack on how to handle these types of disagreements.

For example, if someone is a majority owner, they may put in a partnership plan that they are going to have the final say over every aspect of the business. However, not all partners may agree on that, especially if there are more than two partners involved.

If there are an odd number of partners that have ownership in the company, one easy solution to this could be to put every major decision for the company up for a democratic vote. This would make solving these issues simple and give every partner an equal stake in the business.

In a majority owner scenario, one solution that could be possible is to have that power vetoed if all of the other minority owners agree. For example, if one partner is the majority owner and there are three other partners with a smaller percentage, they could create a clause where if all three other partners vote on something together, they can overrule the majority owner.

Have a Distribution Plan 

One of the most important aspects of a signed contract for a business partner is to know when they will start seeing a return on their investment. This can be a fair question, as some angel investors in particular put up large amounts of money to help businesses get started.

The average time that an angel investor usually expects to get their money back plus interest is about 5-7 years. That means that if you are the owner that is trying to convince someone else to become a partner in your business, you need to have profit projections for at least the next five years.

Distribution Plans for Partnerships

This will require you to have a solid business plan that a potential partner can get behind. Once you have this and the profit projections you expect to have each year, you can explain where a partner’s money is going and how you plan on using that money to make more profit.

After that, you have to discuss the distribution of profits to the partners. Make it clear how long they have to wait for their first payment, how much they are going to get at once, and how long it will take for them to get their initial investment back.

Once you do that, put it all in writing to hold both parties accountable.

Review Terms With a Professional

Finally, make sure you have a legal professional that works in business law to sit down and go over the terms and clauses that you need to have covered in this type of partnership. A business lawyer can help you form an appropriate contract while protecting your own skin.

Lawyers in this situation are not only good for forming formal contracts but you can also use their legal counsel. They have likely worked with many partnership contracts before, so they can give you a better idea of what is fair to ask on both sides and what you should be asking for.

Hire a Lawyer for Partnership Planning 

These are just a few of the things that you need to prepare in advance before forming a formal partnership. Make sure you know who you are getting into business with, how you will handle disagreements, and develop a plan on when investments will be returned.

Then, sit down and find the right lawyer for your partnership planning process. Are you ready to get started? Call us today to come up with a plan.

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