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If you’ve ever wondered how business partnerships are set up and managed, you’re in the right place. In this guide, we talk about why they are 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
Basically, business partnerships are mutually beneficial connections that you can establish within your industry to share resources and drive growth. They are a crucial part of the puzzle when setting up your business and thinking of ways to grow and scale.
Think of business partnerships as a relationship, except that the end goal is clear and business-oriented. There is 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 has grown to a massive success with thousands of customers. None of this would have been possible without a business partnership established with clear boundaries, open communication, shared values and, yes, a written partnership agreement that covered all of our legal bases.
Without a clear agreement, who knows what would have happened as the company grew and priorities changed? Therefore, we recommend that you take your business partnerships seriously, which involves much more than finding someone to call your partner and get a company logo.
Quick tips to improve your business partnerships
To set your business partnership in stone, you need an agreement in the form of a legally binding document to ensure that everyone is on the same page and that expectations are set and understood.
You can do this without breaking the bank. When dealing with legally binding contracts, things can quickly get complex. The best practice is to talk to a business lawyer.
Software that makes this process easier and more accessible is also an option. Bonsai helps you e.g. By creating and outlining legally binding documents and helping you make your business partnership official. Once you have signed up, you can manage your contracts and easily collect e-signatures.
Write your partnership in writing
One of the best ways to ensure the success of any partnership is to outline things in writing. Do not let yourself feel comfortable without taking this vital step. Speech agreements are simply not as powerful or enforceable as written ones.
What is each person’s responsibility? Who is responsible for what? How would you divide the 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 in the future is made from the same point of reference. Without something that clearly and specifically outlines roles, responsibilities, contingency plans, exit strategies, or profit sharing, you may come to a disagreement that you might otherwise have avoided.
A partnership agreement is a written contract for your partnership – and your company. Being proactive about such initiatives ensures that you create the best framework for your business partnership to not only grow but thrive.
From there, if you do not see eye to eye on something, you can always go back to your agreement to hash things out. If your partnership ends, you can refer to your contract to see what the next steps are.
Bonsai can help you create this reference point with its contract management tools. Once you have signed up and logged in, you can quickly prepare legally binding contracts based on ready-made templates that you can adapt to your personal needs. You can learn more here.
Outline your specific goals
Goals will always be an important part of any business partnership. There is always a reason to form a partnership, no matter how small or vague it may seem at first. Setting goals helps you outline what these causes are and why behind them.
Take the time to identify your specific goals before you go together and boil them down to the goals that really matter. Part of successful agreement on mutually beneficial goals is to ensure that you all work according to similar values (which we discuss in more detail below).
Your common goals can be either long-term or short-term. But the important thing is that you have them, they are clearly defined, and that you – perhaps most importantly – both have the same “why” behind your goals.
There is no limit to how many goals you can have. The important thing is that you honor them and strive for them mutually. As plans and goals change, this is an area that you can always visit again.
Chances are that you and your partner’s goals will change over time. As long as you both know where the target item has moved to, you should be able to continue the collaboration successfully.
Be clear about compensation
Compensation is something some partners may not be comfortable talking about in the beginning. But like having shared goals, it’s clear who gets what in different scenarios means a lot.
Clearly defining what compensation will look like can create or break a mutually beneficial business relationship. Sit down with your business partner to have an honest discussion about what each one expects. These are areas like these that you would like 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 will have to compromise on a few things. But like life, compromise is a fundamental part of managing successful partnerships. You do not always get everything you want. But it’s okay. Compromise is the second best alternative. Especially when it comes to compensation and how profits and liabilities will be shared.
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, views, ideas and methods should all be discussed openly 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 possible liabilities on the horizon?
Having an open conversation about your needs and wants and needs and wants for the company helps your partnership become smoother. Once you start withholding information or not being sincere about your business partnership, things start to swing into gray areas, which is harder to navigate as you move forward.
Long-term strategies for better business partnerships
We have gone over tips that you can quickly implement. But what about long-term strategies for business partnerships? How can you manage them better? Here are a few thoughts.
Make sure you share the same values
This is pretty much a textbook step in terms of forming any relationship. You will also hear this kind of advice for romantic relationships. But making sure you have the same values is a crucial step in the formation, management and maintenance of successful (and profitable!) Business relationships.
A partnership built on the same or similar principles will always have a far better chance of success 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 go to stores that look like you?
If your partners do not have similar approaches to your business, do they at least have complementary skills to strengthen your business relationship? The answers to these questions help build a strong business foundation and ensure that you and your partners are on the same page.
Suppose your business partner envisions building a large company while maintaining a small, low-cost company. In that case, you will not make much progress in terms of partnership.
Learn more about the different types of partnerships
Generally, there are four different types of partnerships that you can enter into, whether you are collaborating with one person or a group of people.
It works to your advantage to be aware of the types of partnerships you can legally enter into. Here is a quick overview:
General Partnership (GP): This partnership involves two parties who generally share gains, losses and responsibilities in two. Everything that can happen within the company falls on both partners.
Limited Partnership (LP): Limited partnership is more formal. They usually involve a business owner who is responsible for running the business and a number of investors. Investors are not responsible for day-to-day operations or business commitments, but can either win or lose their investment in the company depending on how things develop.
Limited Liability Partnership (LLP): An LLP ensures that everyone in the partnership actively runs a business while being protected from the actions of your business partners. If your partner destroys something and it becomes a responsibility, you are not affected by the consequences. This setup is usually reserved for a select group of professions.
Limited Liability Limited Partnership (LLLP): An LLLP acts much like a limited partnership. But instead of one person being responsible for the entire company, there is liability protection for everyone involved, including investors. This partnership is a newer type of business partnership.
Be clear about boundaries
Boundaries are crucial to any relationship, including business partnerships. Setting clear boundaries successfully means being honest and listening to understand your business partner instead of listening just to respond. This is called “active listening”.
Once you have clearly stated, or even better written, boundaries in place, you will be better equipped to handle conflicts, overcome bottlenecks, and make progress in the right direction.
What are your partnership breakers? What are you not willing to compromise on? Once you can answer questions like these, you are better able to communicate boundaries that keep everyone in the partnership engaged.
Keep in mind that setting boundaries correctly can also keep you from dissolving, which happens in partnerships more often than not. If you want to break a business partnership, do not let it be because you set bad (or no) boundaries.
Be open to feedback
Receiving feedback is not always everyone’s strongest side. But the benefits of being able to receive feedback and constructive criticism are clear. You are able to grow, resolve conflicts and learn about blind spots that you would not otherwise have seen.
These benefits can be beneficial for a business partnership. As you form your partnership and draw your boundaries, consider feedback as an important part of the partnership management process.
Being open to giving and receiving feedback in your partnership can make a huge difference in how well you communicate. It helps to get specific and outline how you will give or handle feedback to avoid conflicts. You can add this to your written agreement for greater clarity as part of setting boundaries.
Forming a business partnership is the first step towards building something big. At this point, you’ve learned the basics of what it takes to create a business partnership and the things to consider when entering into one.
However, running a business does not only require forming partnerships. For example, you may need to research whether you need to borrow to start your new business. You can review our list of the best small business loans to see what makes the most sense for your needs.
So when you are rising up, it is crucial to think about how you want to 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, do not forget to look at business insurance to protect everything you have worked so hard for.