Business partnerships can be very successful when they work.
These alliances are utilized to monetize relationships that bring in top-line revenue. They can also serve as a catalyst for more opportunities that will lead to top and bottom lines. Almost half (44%) of companies create alliances for new ideas, according to BPI Network. Harvard Business Review says most of tech’s executives (94%) envision partnerships as a fundamental part of their overall business plan.
Despite the promise, however, research finds that most business partnerships fail.
This type of angst makes the interviewing process even more important. The next time you need a new business partner, make sure a series of questions is asked about how prospective partners expect to play nicely with the existing operations, as well as each existing partner.
Business Partnership Insight: 1. What are your expectations of each owner?
Figuring out how each business partner fits together is an important question that you will need to address sooner rather than later. The topic of gross negligence, when a partner harms another by failing to provide a certain standard of care, is one of the more common reasons why business partnerships fail. Assessing each partner’s motivation, which is closely tied to expectations, should jibe with the business partnership agreement and operations plan to increase chances for success.
Business Partnership Insight: 2. What is your vision for the firm?
This question asks about what the prospective business partner wants from the venture. New business partners can bring new thoughts, ideas and motivation that can propel the company forward. New energy, however, doesn’t always have a positive impact. Are the prospective partner’s goals in line with the other partners? Would the candidate’s management style elevate the firm? Breach of Partnership/Operating Agreement is another common legal problem that can doom a business partnership. The best time to discuss alignment is during the interview process.
Business Partnership Insight: 3. How would you manage the departure of a partner?
This is why you need a comprehensive business partnership agreement. Depending on how many partners you have in the firm, the departure of a business partner can be quite involved in varying degrees. Typically, there are four options. The fastest option is for the remaining partners to buy out the shares of the departing partner. If the departing partner played a large role in the company, then perhaps selling the business would be the best option.
Dissolving the business, on the other hand, could be the best option. This option could also be spelled out in the business partnership agreement to avoid a potentially lengthy legal battle, which is possible when one partner disagrees.
Replacing the departing business partner is another option. Although it would take more time than a buyout, it wouldn’t impact the resources of existing partners and would create an opportunity to bring on someone with a different perspective and skill set.
Business Partnership Insight: 4. What experience do you have with business partnerships?
Being an employee and being a business partner are two different things. Partners, for example, must act in good faith and fairness as part of their fiduciary duty to other partners.
Mismanaging company funds, damaging the firm’s reputation or “goodwill” and putting the company at legal risk due to your own negligence would be examples of a breach of fiduciary duty.
Along with ownership comes more legal responsibilities that must be considered.
Business Partnership Insight: 5. What is your experience with sales and margins?
In sports, it has been said that winning is the best deodorant. Success tends to cover missteps and miscues.
In business, top-line sales and margins are important factors when determining success. When those two items are realized, however, there could be finger-pointing. The setback could also encourage business partners to lose interest as they put their energy behind other entities. Partnership abandonment is a real legal issue for business partnerships, and it is another reason why you need to work with a trusted legal advisor to ensure all possible outcomes are covered in writing before they occur in your business partnership.
Business Partnership Insight: 6. How can this firm take it to the next level in the next 12 months?
This question is about resources and how they will be utilized. When asking about the path forward, a prospective business partner will have to disclose specifics about the “how” as well as the “why” behind the plan.
In the big picture, business partners are very important, in-house resources that should be utilized fully based on areas of expertise. Delegating the work can be a challenging area for partners. Failure to delineate authority is another common legal issue that surfaces with business partnerships. The operating agreement should contain enough detail so partners understand how they can make a meaningful contribution while staying in their own lane.
Business Partnership Insight: 7. Looking ahead 12 months, you believe that you made a great decision by joining this partnership. What are the two reasons?
This question asks, “What do you want?” in a different way, which tends to draw more specifics about the prospective business partner’s intentions. The more insight that the existing partners gather before an offer is made, the better for the entire venture. Making time for due diligence will pay dividends figuratively and literally.
(Paul Fenaroli is an Associate Attorney at Pastore, a law firm that helps corporate and financial services clients find creative solutions to complex legal challenges. He can be reached at 203.658.8470 or firstname.lastname@example.org.)
Tags: Business Partnership, Paul Fenaroli
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