The 10 “Bottom Lines” When Formalizing Any Partnership

I wanted to build on my last article about the 30 must ask questions before you enter into a partnership by sharing the most essential bottom lines to cover when you formalize the partnership.

1. Get your agreement in writing.

Yes you’re busy, and lawyers are expensive, but if you can’t afford the time and money to properly document the partnership, should you really even be entering into it?

2. Make sure you share common values and vision.

Don’t just look at the ways you fit, intentionally put on your black hat for a moment and list out all the ways you don’t fit, and the reasons you shouldn’t partner.  This will help you fully think through the fit before you go too far.

3. Integrity is a MUST in any choice of partners.

What evidence do you have of your potential partner’s integrity?  Of their lack of integrity?

4. Evaluate your prospective partners past exits from business and personal relationships to see what that reveals about how they will behave if your business relationship ends. 

While investment prospectuses have to say, “Past behavior is not a guarantee of future performance” with human behavior it is your best clue.

5. In your written agreement, put the onus on making the partnership work out.

Make it less favorable to leave or quit the partnership.  This tilts the field to push you both to work things out.

6. Make sure in your “partnership math” you don’t base it on time invested, but rather on value created.

Both of you must feel fairly treated or the situation won’t work.  Divide up the contributions all partners are making to the business and put an equitable value on each of these contributions.  Look for external measures of value – what would you have to pay for this contribution on the open market?  Rewards and control should follow contribution and risk.  If things change over time, your agreement needs to reflect how this will impact profit splits and equity ownership.

7. Choose the right legal structure at the start of the partnership.

8. Get your written agreement done during the “honeymoon” stage of the partnership—up front!

If you can’t get things agreed to in writing when you’re “in love”, how will you get things equitably split at the end when emotions are high and attorneys are whispering?

9. Consider doing a “one off” joint venture to see what it’s like working together first before you jump into a long term business partnership. 

In other words, date before you marry.

10. Incorporate your answers to how to handle the five D’s in your written partnership agreement up front.

I wish you the best of luck as you move forward in your partnerships.  Remember, your roles and needs in the partnership will change over time.  Make sure you keep the dialogue with your partner(s) open along the way.