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Things to Consider When Going into a Partnership Business

business partnership

 

Many times two friends will get together and come up with a great idea and decide to start a business.   The intention is to be a fifty-fifty partnership.   Then as time progresses this may not work out and one ends up buying the other out.   The decision then has to be made as to whether to keep the company as a sole owner or to take on another partner.   It isn’t quite so easy this time around.

You may not know the new potential partner so you are going to have to be a little more careful.   You need to first check out their credentials to be sure they can do what they say they can do.   Your partner is going to be taking on a lot of responsibility and your business is at risk here.   You need the individual you are going to be working with and who is going to own part of your company to be credible and trustworthy.

Be clear on the ground rules

Just as you expect this new potential partner to be up front with you then you need to do the same.   Be honest as to what the company is presently doing and fair with its projections.   Don’t sweeten the picture with inaccuracies just to draw the individual in.

You also need to be very clear as to the expectations and role that this new person to the company will have.   Ideally this individual should be able to take on the responsibilities in the company areas where you do not have the right expertise or the time for.

Setting the goals as a partnership

You then need to start to determine what are the goals of the company going to be?  While up till now since you have been going it on your own, you have had your own ideas.   Now you must allow your partner to step in and play an active role in this by sharing their opinions and expectations.   If these are too far out of the scope you have set for the business, then you may need to think twice about taking on this particular partner.

A trial run

Depending on what type of financial investment is going to be put in place you may want to try a trial run for a few months to see how things are going to work out.   Let the potential partner take on the new role for a few months before making the final legal agreement.

 

Discuss the proposal with you accountant

It is a good idea once all of the other details are worked out, that you and the new potential partner sit down with your accountant and discuss your plans for partnership. This financial expert can also go over the financials of the company as they stand now so the new partner has a very clear picture of where the company is at financially.

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Sam Seidman, CPA, CA, LPA
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Toronto, Ontario
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Chartered Professional Accountant, Chartered Accountant, Licensed Public Accountant

Email: sam@torontoaccountant.ca

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