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Proud Partners - Protecting Partnerships

Friday, January 31, 2014   By Mike Reddy


Entrepreneurs tend to begin their road to small business alone - a sole proprietor structure limits the accountability and makes the tough decision making just a tad easier.

After all, it is their headstrong egoism that has driven them to get this far and battling another like-minded partner can mean rough seas for a start up.

At a certain point in the development, partnerships become a valuable consideration. Partnerships can create more freedom and provide the potential for achieving better profits.

They can also be potentially volatile.  Before considering forging a partnership ask yourself the following questions:

  • Do you have the same goals- both short and long term?  Is your vision the same?  Without the same end game, the partnership is destined for disaster.

  • What are the responsibilities of each partner?  What are the roles?  Clearly define these before entering into any formal agreements.

  • How will you determine percentage of ownership?  50-50 seems logical, but is not advisable.

A successful business depends on decision making and that’s not always possible when key stakeholders have equal say.  A 49%-51% is about the best that can work for a business but if that’s not possible consider creating a board to settle disagreements.

Once the guidelines are decided, form a binding agreement. A solid contract clarifies the relationship when questions are raised. 

The Small Business Association suggests the partnership agreement should include:

  • Equity invested by each partner
  • Type of business
  • How profits and loss will be shared
  • Partners pay and compensation
  • How assets will be divided in case of dissolution
  • Guidelines for changes or termination of partnership
  • Clause for dispute settlement
  • Guidelines in case of death or incapacitation
  • Restrictions of authority and expenditures
  • Length of the partnership

With these ten factors reduced to writing each partner can focus on achieving the agreed vision and not be distracted by internal disagreements.

Mike Reddy is a Chartered Accountant, business coach and advisor helping businesses in Sydney, Melbourne, Brisbane and Gold Coast to easily increase their profits and cash flow. He is currently President of the North Sydney Chamber of Commerce, a Regional Councillor for Sydney North East and a member of the Institute of Chartered Accountants Sydney leadership team. As well as advising businesses, Mike presents business development seminars and webinars and is regularly contacted by the media to comment on small business matters. You can connect with him on Facebook, Twitter and Google+.