Are you about to enter a business partnership? First read these eight common mistakes to avoid:
1. Assuming that a good friend will make a good business partner. Just because you get along great with someone doesn't mean you will be successful business partners. Going into business with a friend can also put the friendship in jeopardy.
2. Choosing a business partner with the same skill set as your own. You want your partner to bring a new set of strengths to the table, preferably making up for any weaknesses you may have.
3. Failing to get an operating agreement in place before working. If you are taking any risks by entering the partnership, you need to have your compensation, role and protections clearly identified in an operating agreement before you start any work.
4. Failing to look toward the future. The operating agreement shouldn’t just define your compensation, role and protections now, it should also provide as many details as possible for the future. This may also include an agreement on whether any new partners will be brought on.
5. Failing to use a business lawyer to draft your operating agreement. There are many forms online that provide boilerplate language for operating agreements, but unless you retain an experienced business law attorney to draft or look over the document for you, you cannot be sure that it is entirely effective.
6. Failing to provide yourself a way out. While talking about the business failing or a major conflict occurring may seem awkward or pessimistic, it’s important to do now before the stakes are much higher. Just make sure to have this conversation in a respectful, collaborative manner.
7. Ignoring conflicting values, goals or philosophies. While you probably won’t agree with your partner on everything, it’s important to have values, goals and business philosophies that can coexist. For example, if your partner wants to create a Fortune 500 company while you want to stay small, your partnership might be destined to fail.
8. Competing with your partner for a better outcome. The focus when creating your operating agreement should be protecting yourself while also making sure that your partnership is fair. You want your partner to feel excited and willing to work hard for the business instead of bitter.
Source: Forbes, “How To Avoid A Partnership Dispute,” Shane Robinson, Feb. 20, 2014