30 “Must Ask” Questions Before You Form Any Partnerships
Are you thinking of bringing in a partner? Or formalizing a strategic relationship?
Over the years I’ve moved into and out of literally dozens of joint ventures and partnerships. And over this time these partnerships and joint ventures have created millions of dollars of market value. But with any partnership, be it long term or a one-off, the stakes are high.
Here are the most important questions I urge you to ask before you finalize any partnership arrangement.
Do you share similar values? Will you both fundamentally be moving in the same directions? Do you both want the same or complimentary things? What things do you want that might be at cross purposes with each other?
How does your prospective partner deal with conflict? Is this a match for your style? In times of stress will your partner stay the course or cut and run? How have they dealt with conflict in their past personal and business relationships? What clues are you able to uncover that reveal the real story?
What type of hours will this person work? How much work will they put into those hours? How effective are they? What is their work style and can you live with it?
Do you trust this person? Is that trust based on real data or an emotional connection? How has this person behaved in their past? Does this person consistently meet their commitments, big or small? Will this person do what’s right, especially when it isn’t convenient or profitable?
Why shouldn’t you partner with this person? What dangers could you face if you move forward with the deal? How might you feel in a few years time if you move ahead in this arrangement that you’ve been ignoring or refusing to allow yourself to see?
Once you’ve made the decision to enter into a long term business partnership with someone, make sure you choose the right legal structure for that business.
We all know we are supposed to “get it in writing”, but here are five things that your partnership agreement must cover that many entrepreneurs forget. I call them the “Five D’s of Partnerships”.
The Five “D’s” of Partnerships
What happens if one of the principals of the partnership dies? Usually this is handled by a buy-sell clause that is funded with a life insurance policy.
What happens if you and your partners reach an impasse… an irreconcilable difference on a fundamentally important issue? How will you handle it? Will one of you have the final say? Or will you instead have the last resort be a carefully thought through buy-sell agreement.
What happens if any of the partners becomes financially insolvent and declares a bankruptcy, will you have to take on that partner’s creditors as your new partners? Usually in the case of bankruptcy the economic interest of the insolvent partner will revert back to the other partners, or at the very least, be strictly limited to the economic interest and not any voting or controlling rights. This protects members of the partnership.
Let’s say you’re a partner with Sally. But she and her husband Jim get a divorce and in the settlement Jim gets half of Sally’s interest in your partnership. Do you really want to be forced to take Jim into your partnership? You need to decide up front how you want to handle this contingency.
The final “D” is disability. What happens if one of the partners is hurt and is no longer able to contribute time and talent to the partnership, how will this effect their ownership interest and the way profits are split?
You’ll need to consider all five of the D’s and incorporate your answers in your written partnership agreement.
I know that all this talk of the five D’s might leave you wanting to go take a shower, but if you can’t have these real conversations with your partner at the start of the relationship when you’re both feeling “in love”, how in the world will you have them at the end of the partnership when emotions are running high and attorneys are whispering into each of your ears?