The Positives and Negatives of having a Business Partner

Are two heads really better than one? In some ways, the answer is undoubtedly yes, but taking on someone to help you run your business has its downsides as well. Here we look at the advantages and disadvantages of having a business partner.

Advantages

Finance

No business can survive without funds. Securing access to start-up capital is one of the most significant challenges a new business faces. If you are a sole trader, you may need to source all of this start-up finance yourself, but if you have a business partner, you can both try and obtain financing.

A sounding board for ideas

As a sole trader, you need to make all the important business decisions single-handedly. It goes without saying that in such circumstances, you need to carefully think through any decision.

If you have a partner, you can share your ideas with each other. Your business partner’s knowledge, experience or plain instinct may allow your ideas to be modified or scrapped altogether if necessary. No-one likes having their ideas criticised, but obtaining a second opinion before bad decisions are implemented can save a great deal of money. Many a business has failed as a result of a single bad decision that turns out to have far reaching consequences.

Wider range of expertise

If you are a sole trader, you are responsible for all the business functions, such as marketing, finance, strategic planning, production, distribution and customer service, and you may well not be an expert in all of these. Having a business partner means your organisation can benefit from the skills and expertise of you both. For example, you might specialise in marketing and business strategy, while your partner’s background is more suited to handling financial matters.

Easier to network

For many organisations, networking is a vital way of growing the business. If you take on a business partner, the business then gets access to two sets of business contacts.

Increased manpower

Sole traders either have to carry out all the work themselves, or spend money on recruiting and paying other people to do this. Many cannot afford to employ staff and so spend long hours making sure they take care of everything personally. Having a business partner allows the workload to be shared.

Disadvantages

Reduced authority

Taking on a business partner spells the end of your period of complete control over the business. The workload and responsibilities of a sole trader can be significant, but with these comes the absolute freedom to do whatever you want with the business, provided it is within the law of course. Once you have a partner, decisions will need to be taken jointly. You could decide to make all operational decisions together, or you could divide up responsibility for decision making in different business areas between you. Either way, you lose total control.

Allocating profits

A partnership is not legally recognised as a company. It is simply an arrangement by which two or more individuals conduct business activities together, and so the issue arises over how the partnership’s profits should be split. It may seem obvious to split profits between you in equal shares, but sometimes one partner may feel that their contribution merits a greater share. Even if you consider your business partner to be a friend, make sure things like this are covered by written agreements, and do not rely on a verbal pact struck over a pint of beer! Running a business can be a stressful experience and large sums of money can be at stake, and many a friendship has been ruined by disagreements over business affairs.

Different work approaches

The phrase ‘opposites attract’ is often used with reference to personal relationships, but it can sometimes apply to business partners as well. Many a successful business has been run by two very different figureheads in partnership, and one of the reasons why this may be a recipe for success is that people with different personalities tend to excel at different things – the personality of the typical salesperson can be very different from that of the typical accountant.

However, if two partners approach their work in different ways, it can be a recipe for conflict. For example, if one partner is obsessed with detail, they may regard their more carefree colleague as neglecting important issues. The other partner may see their detail-obsessed colleague as a ‘fusspot’ who exaggerates minor issues.

Having a partner who is poorly organised and who misses appointments and deadlines can be very frustrating.

Conflict over business decisions

In business, people regularly need to argue their case to convince other business principals that their ideas are sound. Business partners who disagree should always try and use reasoned argument, backed up by evidence where possible, to try and win their colleagues round. But if this approach does not work, and the partners fundamentally disagree over the direction of the business, there can be serious problems. Remember that you and your business partner may spend a great deal of time together, and relationships can become strained if you disagree.

No one likes to think about businesses ending in failure. But just as we have seen how it is important to have written agreements in place over the division of partnership profits, it is also vital that your partnership agreement addresses what will happen if one partner wishes to leave the business.

Joint liability

It is not possible to divide up the partnership’s debts between you. Under UK law, the partners are considered to be ‘jointly and severally liable’, i.e. each partner is liable for the entirety of the partnership’s debts.

This problem can be mitigated by forming a limited company instead of operating the business as a partnership. If you are a director of a limited company, as opposed to a partner, then you are only liable for the company’s debts up to your level of personal investment.

However, many of the issues we have explored in this article apply as much to running a limited company with one or more colleagues as they would to a partnership arrangement. In a limited company, you can still fall out with your fellow business principals.

Author Bio: Keith Tully is a business recovery specialist with Real Business Rescue, a firm of insolvency practitioners dedicated to helping struggling companies across the UK.