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If you’ve ever wondered how business partnerships are created and managed, you’ve landed in the right place. In this guide, we talk about why they’re so important, quick tips on how to form the best possible partnerships, and long-term strategies you can use to strengthen them.
Why Business Partnerships Are So Important
At their very essence, business partnerships are mutually beneficial connections you can create within your industry to share resources and manage growth. They’re a crucial part of the puzzle piece as you establish your business and think about ways to grow and scale.
Think of business partnerships as a relationship, except the end goal is clear and is business-oriented. There’s usually also a legally binding contract involved. This way, anyone involved in a formal business partnership with you is legally protected right along with their assets.
Take it from us. We founded Crazy Egg in 2006 and it’s grown into a massive success with thousands of customers. None of this would have been possible without a business partnership created with clear boundaries, open communication, shared values, and, yes, a written partnership agreement that covered all our legal bases.
Without a clear agreement, who knows what would have happened as the business grew and priorities changed? This is why we recommend you take your business partnerships seriously, which involves much more than finding someone to call your partner and getting a business logo.
Quick Tips to Improve Your Business Partnerships
To set your business partnership in stone, you’re going to need an agreement in the form of a legally binding document to ensure everyone is on the same page and expectations are set and understood.
You can do this without breaking the bank. Whenever you’re dealing with legally binding contracts, things can get complex pretty quickly. The best course of action is to speak to a business attorney.
Software that makes this process easier and more accessible is also an option. Bonsai, for example, helps you create and outline legally binding documents and help you make your business partnership official. Once you sign up, you’re able to manage your contracts and easily collect e-signatures.
Put Your Partnership In Writing
One of the best ways to ensure the success of any partnerships is to outline things in writing. Don’t let yourself get comfortable without taking this vital step. Spoken agreements simply aren’t as powerful or enforceable as written ones.
What are each person’s responsibilities? Who is liable for what? How will you split profits? Who owns how much of the business? How are conflicts resolved?
Questions like these help you outline a better-written agreement so that every decision you make going forward is made from the same reference point. Without something that clearly and specifically outlines roles, responsibilities, contingency plans, exit strategies, or profit-sharing, you may come to a disagreement that you could have otherwise avoided.
A partnership agreement is a written contract for your partnership–and your business. Being proactive about such initiatives ensures you’re creating the best environment for your business partnership to not only grow but thrive.
From there, if you don’t see eye to eye on something, you can always go back to your agreement to hash things out. If your partnership ends, you can reference your contract to see what the next steps are.
Bonsai can help you create that point of reference with its contract management tools. Once you sign up and log in, you can quickly draw up legally binding contracts from premade templates that you can customize to your personal needs. You can learn more here.
Outline Your Specific Goals
Goals are always going to be a key part of any business partnership. There is always a reason for forming a partnership, no matter how small or vague it might seem at first. Setting goals help you outline what those reasons are and the why behind them.
Take time to identify your specific goals before getting together and boiling them down to the goals that really matter. Part of successfully agreeing on mutually beneficial goals is making sure each of you operates by similar values (which we get into more below).
Your shared goals can be either long or short-term. But the important thing is that you have them, they’re clearly defined, and that—maybe most importantly—you both have the same “why” behind your goals.
There’s no limit to how many goals you can have. The important thing is that you honor them and mutually strive toward them. As plans and objectives change, this is an area that you can always revisit.
Chances are, you and your partner’s goals are going to change over time. As long as you both know where the goalpost has been moved to, you should be able to continue working together successfully.
Be Clear About Compensation
Compensation is something some partners might not be comfortable talking about in the beginning. But just like having shared goals, being clear on who gets what in different scenarios matters a lot.
Clearly defining what compensation will look like can make or break a mutually beneficial business relationship. Sit down with your business partner to have a candid discussion about what each expects. It’s areas like these that you want to outline clearly, preferably in writing.
From there, look for the middle ground so that each of you gets most of what you want. You’re going to have to compromise on a few things. But much like life, compromise is a fundamental part of managing successful partnerships. You won’t always get everything you want. But that’s okay. Compromise is the next best alternative. Especially when it comes to compensation and how profit and liabilities will be split.
Keep Open Communication
One of the best ways to maintain a healthy business partnership is to be as communicative as possible. Concerns, plans for the future, strategies, values, points of view, ideas, and methodologies should all be openly discussed without holding back.
Consider scheduling regular meetings where you can check in with your partner on all things business. Are things going as planned? Have any priorities changed? Are there any possible liabilities on the horizon?
Keeping an open conversation going about your needs and wants and the needs and wants for the business help your partnership go smoother. Once you start withholding information or aren’t sincere about your business partnership, things start veering into gray areas, which is harder to navigate as you move forward.
Long-Term Strategies for Better Business Partnerships
We’ve gone over tips that you can implement quickly. But what about long-term strategies for business partnerships? How can you manage them better? Here are a few thoughts.
Ensure You Share The Same Values
This is pretty much a textbook step in terms of forming any relationship. You’ll hear this kind of advice being given for romantic relationships, too. But ensuring you have the same values is a critical step in forming, managing, and maintaining successful (and profitable!) business relationships.
A partnership built on the same or similar principles will always have a much better chance of succeeding than a partnership based on other, more volatile factors. Do the people in your partnership have the same visions, goals, and business milestones in mind? Do you share the definition of success? Do they approach business similar to you?
If your partners don’t have similar approaches to how you do business, do they at least have complementary skills to strengthen your business bond? The answers to these questions help build a strong business foundation and ensure you and your partners are on the same page.
Suppose your business partner envisions building a huge corporation while you want to maintain a smaller company with low overhead. In that case, you aren’t going to make much progress in the way of partnership.
Learn About The Different Partnership Types
Generally, there are four different types of partnerships that you can enter into, whether you’re partnering with one person or a group of people.
It works to your advantage to be aware of the types of partnerships you can legally form. Here’s a quick overview:
General partnership (GP): This partnership involves two parties who generally split gains, losses, and responsibilities in half. Anything that may happen within the business falls on both partners.
Limited partnership (LP): Limited partnerships are more formal. They usually involve one business owner responsible for operating the business and a number of investors. The investors aren’t responsible for day-to-day operations or business liabilities but can either gain from or lose their investment in the company according to how things pan out.
Limited liability partnership (LLP): A LLP ensures everyone in the partnership actively operates a business while simultaneously being protected from the actions of your business partners. If your partner messes something up and it becomes a liability, you aren’t affected by its implications. This setup is usually reserved for a select group of professions.
Limited liability limited partnership (LLLP): A LLLP works a lot like a limited partnership. But instead of one person being liable for the whole business, there’s liability protection for everyone involved, including investors. This partnership is a newer type of business partnership.
Be Clear About Boundaries
Boundaries are essential for any relationship, business partnerships included. Successfully setting clear boundaries involves being honest and listening to understand your business partner instead of listening just to respond. This is called “active listening.”
Once you have clearly spoken, or better yet written, boundaries in place, you’ll be better equipped to manage conflict, overcome bottlenecks, and make progress in the right direction.
What are your partnership deal breakers? What are you unwilling to compromise on? Once you’re able to answer questions like these, you’re better able to communicate boundaries that keep everyone in the partnership engaged.
Remember that properly setting boundaries can also keep you from dissolution, which happens in partnerships more often than not. If you’re going to break up a business partnership, don’t let it be because you set poor (or no) boundaries.
Be Open To Feedback
Receiving feedback isn’t always everyone’s strongest point. But the benefits of being able to receive feedback and constructive criticism are clear. You’re able to grow, resolve conflict, and learn about blind spots that you wouldn’t have otherwise seen.
These benefits can be beneficial to a business partnership. As you form your partnership and draw out your boundaries, consider feedback as an important part of the partnership management process.
Being open to giving and receiving feedback within your partnership can make a huge difference in how well you communicate. It helps to get specific and outline how you’ll provide or deal with feedback to avoid conflict. You can add this to your written agreement for greater clarity as part of setting boundaries.
Forming a business partnership is the first step toward building something great. By now, you’ve learned the basics of what creating a business partnership looks like and the things you should consider when entering into one.
However, managing a business doesn’t only require forming partnerships. For example, you may need to look into getting a loan to start your new business. You can review our list of the best small business loans available to see what makes the most sense for your needs.
Then once you are ramping up, it’s crucial to think about how you will manage your business and employees. Business management software helps create a structure and plan for day-to-day operations and logistics so you can make your business a success. We’ve reviewed dozens of business management software tools and identified the top five to help you reach your goals.
Last but not least, don’t forget to look into business insurance to protect everything you’ve worked so hard for.