For green industry businesses, there can be plenty of reasons that you would bring on a partner. Maybe you’re a lawn maintenance business that has reached capacity for accounts and you need more equipment to handle more customers. Or an irrigation business that is struggling to gain a foothold because of competition in the area. Maybe you just need another person to split the responsibilities of running a successful business.
Here are a few questions you need to ask yourself before you bring on a partner for your business. Some people say this is the single biggest decision you can make for your business, besides actually starting it. You need to know the answers to these before you move onto the next steps.
This is the biggest reason why people bring on a partner. If they aren't able to expand without an influx of cash, many business owners will consider a partnership. But do you really need the money right away? Could you wait and use the profits from the upcoming season and then initiate your expansion?
This question is typically the root of the reasoning behind why someone might want to bring on a partner for their business.
Have you fully exhausted your options for financing? Here is a great way to look at this topic from an article written by a small business CPA.
“Money is a commodity. Often there are many other sources of funds available that do not involve taking on a new owner and they are a far less expensive option than selling the business’s equity.”
Even if you feel like you’re at a loss, you might be able to get the money you need from a different source that doesn’t require you to relinquish control and equity.
Finally, if you’re able to answer the other questions and still feel a partnership is the right route for your company, you need to ask yourself if you can afford to lose the control. One Lawnsite.com user mentioned that if you MUST bring on a partner, never give up majority ownership. The most equity you should give up should be 49%.
However, on the other hand, a majority of users on the same thread said that you should never form partnerships. There was a smaller poll on Lawnsite (only 25 people answered) and 84% said that you shouldn’t partner.
Once you answer those questions and still think you need to bring on a partner, here is what you should consider:
So you’ve answered all the questions above and still are leaning towards a partnership, eh? I’m not trying to scare you away from a partnership, because they can be beneficial under the right circumstances. But business owners need to be cautious and need to ensure they are protected for anything that might come up.
Get everything in writing. Even if you’re forming a partnership with a family member or friend, it is still important to get everything in writing. Your business plan should outline general duties and responsibilities.
Besides having a contract between partners which accurately and in detail describe the terms of the partnership, you should also know which type of business entity you are forming. One of the more common forms of business structures is the Limited Liability Company.
LLC’s can have multiple members and this will protect your personal assets in the event a lawsuit does arise. Here is some sage advice from Bloomberg Business writer, Karen Klein,
“Experts we talked with, recommended that you form an LLC for your business—and do it sooner rather than later. Without that legal protection from personal liability, you’re putting your home, your bank accounts, and all your other assets on the line every time you take a job, because no matter how good you are, there’s always the potential for something to go wrong and for a dispute to wind up in court.”
This Lawnsite thread had some good advice about bringing on a partner. One user said that the best way to do it is to make sure you get a lawyer and have an agreement drawn up. Percentages, duties any buyout options. And having a “silent” or a limited partner is best if you really can’t get the money you need elsewhere.
One article that I read likened a business partnership to marriage. I don’t know if I’d go as far as to say that, but you are going to be spending a lot of time with this person. You need to be a compatible partnership in order for it to work long term.
Have you spent a good amount of time with this person? Have you worked with him/her in the past? You should know how they operate, what makes them tick, what angers them and whether or not you can work with them on a daily basis.
In the book $100 Startup, by Chris Guillebeau (I recommend this book to any entrepreneur), said that a partnership should be worth more than the sum of just two people joining forces. If people put in 100% of their effort, the sum shouldn’t just be 200%, but at least 230%.
Is the person passionate about the work? In Ruth King’s book, The Ugly Truth about Small Business (another must read!), she covers stories from 50 different times when something went wrong. One of the stories was from a lawn maintenance business owner who had a partner that simply lost interest in the work.
It left him in a tough situation in which he had to negotiate a buyout. One of the lessons he learned was that there has to be a buyout plan in place and that a partner doesn’t have to be a partner for life (more on that next).
This ties into your agreement and terms that you have drawn up. But if something does go wrong, an unexpected illness or family situation, you and your partner should have an easy out. It should be a clear process of what needs to be done to end the partnership.
If things don’t work out between you and the partner, you don’t want to be tied up in a legal battle. Enforcing your rights will also force you to seek legal council, which in turn costs money… And hey, aren't you considering partnering so you can make more money?
A separation and departure plan should be written out and agreed to between partners. Don’t make a mess out of a business that you worked so hard to start and grow!
Like I said earlier, I’m not trying to scare anyone away from a partnership! They can be very beneficial under certain circumstances and with certain businesses - a solid partner might be the difference between growth and failure.
The reasons you should be form a partnership should be that a) you have exhausted other options for financing b) you can’t achieve growth without bringing a partner on.
Consider whether or not the person you are bringing on is a good fit and that they will contribute every step of the way. And give yourself and your partner a way out if issues do arise.