Before You Say ‘I Do’ to a Business PartnershipPosted on Monday, November 4th, 2013 at 9:06 AM
By Tayo Phillips
A business partnership has been likened to a marriage. This is not far-fetched because it is indeed a marriage. It is a union of minds, views, characters, ideologies, principles, cultures… the list is endless. A business partnership can make or break you AND your business.
They say if you’re of ‘marriageable age’ then you should get married. That’s exactly how it is with a partnership; it is not for children or for people who are immature. While saying ‘the advantages of a partnership outweighs the disadvantages’ is misleading, one must carefully evaluate one’s position before embarking on an agreement of this sort. Your state of mind and your finances must be properly considered before you buy into a partnership agreement or you pitch your business idea to other people.
“I don’t intend to bring anybody on board. Thank you.“
From my experience, not every business needs partners. However, if your reasons for saying you don’t need partners is because you don’t like the idea of co-owning your business then either of two things that can happen:
1. The universe can nice to you and your business and you win it all or
2. You own a company 100% and it’s not worth half as much the potential10,60 or 70 percent you would have got if you had the right partners on board.
What wouldn’t I give to have one percent Class A share of Facebook?
Reasons Why You Should Get a Partnership Agreement
You Need the Expertise
You have a good idea but not the capacity to manage a business or the idea , you can and should consider having someone who can compliment you and your business .
You Can’t Give the Business Your 100% Concentration
Most people with 9 to 5 jobs fit into this category. They need capable hands to run their business regularly. Most make the mistake to hiring instead of partnership. It’s only in rare cases do employees take up their jobs like or more dedicated than the business owner
You Have Limited Finance
This is the most common reason people seek partnership and this is the easiest way to be vulnerable and make all the wrong decisions. I would go straight out with you on this one. If you are the business owner and you ever have the option of choosing between receiving debt,(loan financing) or equity(allocation of shares to investors), please choose debt/loan if you have a business that would be liquid(access to cash) soon enough.
Let’s do the maths.
Imagine getting a million Naira from an investor and in two years, you have 3 million Naira net income.According to your agreement 40% of your earnings would be retained. It is to be set aside to go back to the business. So now you have to split 1.8 million Naira with your investor. Every time you earn an income, you split 60% into equal halves and in 10 years, if your annual net income is between 3 million Naira or more, you would have given your investor N15,027,648.93.
On the other hand, if you took a loan of a million Naira, knowing well enough you should start getting cash flows almost immediately, at an annual interest rate of 30% (Nigerian banks style). If you earn 3 million Naira in the second year, you would pay back that loan (principal plus interest) in 3 years and that’s it without putting so much pressure on your business. You can still earmark 30& of income to resemble the earlier scenario.
Now you understand why it’s said that debt is cheaper than equity. I want you to understand that debt is not a bad thing; partnership/equity isn’t either. The peculiarity of business gives room for the manifestation of the strength of the different source of funding. To put it simply, if your business has a long term, highly unpredictable cash flow possibility, for the sake of your heart if nothing more, go for equity/partnership. Share the risk and yes… the success too.
Red Flags You Should Watch Out For Before Entering a Partnership
This is the worst trait anyone can have, and anyone big on selfishness should be avoided or given the boot. Nothing good can come out of it.
You know that buddy of yours who sees all of the things that would go wrong long before he sees the promising side to your business ideas? Thank him for his observations and please inform him you would try your best possible not to seek his opinion or interest ever again since you already have a good knowledge he would at best bring negativity to the table.
Unless you are the poster child for bad character with no integrity, unruly behavior,extravagance, etc do not be attracted to your unlike pole. If you are a morally upright person, you would only be stressing yourself with someone who thinks it’s okay to sleep with a client or pay bribes to get jobs. Save yourself the heartache.
You really can’t be too careful especially before you sign away your life. Steve Jobs got lucky, many other people weren’t. Speak to a lawyer before going into any agreement with ANYONE. I can tell you for free no one loves you that much they would give you a super fantastic offer that would make Warren Buffet jealous, you are most likely not reading a clause well .
I wish you the best of luck in all your endeavors.
Photo Credit: footage.shutterstock.com
Tayo Phillips turned her passion into a career. No it’s not baking. It’s helping people setup their businesses. She is unapologetically ambitious,overzealous with work and loves life. Her big dream is to run her group of companies from her kitchen and retire to live in Greece. She lives in Lagos and earns a living as a business development consultant with a niche in start-ups.