Every business structure has its upsides and downsides, which an entrepreneur has to factor in before making any final decisions. Partnerships are some of the most common structures when creating a commercial entity. Among the advantages of partnership there is the fact that it allows you to join forces with one or more individuals in the running of a company. The type of partners you get are at your discretion. But the point is to have people who can help with the decision-making and other aspects of the enterprise.
Taking care of a company is no easy feat. So having the right help goes a long way. Any business can have a partnership, from boutique firms to large corporations. As with any business model, partnerships have their risks like when individuals develop bad blood between them. However, when you understand the advantages of partnership, you can weigh them against the potential disadvantages. This guide looks at some of them.
What Is a Partnership?
A partnership is a business model where two or more people own an enterprise. The owners share the responsibilities of the organization. In most instances, entrepreneurs seek partners who complement their skills or capital needs. A partnership is suitable when getting into an area where you lack extensive knowledge. For example, you can get a partner who is talented in IT and start a company even though your skills don’t go beyond operating a smartphone.
One of the advantages of partnership in business is that it is relatively easy to form and comes with certain tax benefits. The company is a separate entity from the owners, unlike in a proprietorship where the two are intertwined. When getting into a partnership, take some time to develop a workable agreement.
Who Needs a Business Partnership
Any entrepreneur can capitalize on the advantages of partnerships because there are no limitations. Regardless of the size of the startup, you can find another person with similar interests and form a partnership. This type of business model is mostly suitable for entrepreneurs trying out a new sector. If your forte is financing, but you want to start a marketing firm, you can pair up with a professional marketer with relevant experience and expertise.
You can opt for a partnership when starting a business in a foreign region. Sharing responsibilities with a local who knows how the market operates improves your chances of success. Understand your reasons for getting into a partnership so that you can get everything you want from it.
What You Get from a Business Partnership: 5 Facts
Every entrepreneur hopes to get certain advantages of partnership when getting into this type of business. Before you set up a company with partners, consider the legal implications and other elements that may impact the running of the firm.
1. Shared Responsibility
One of the biggest advantages of partnership when starting a company is the shared decision-making. You are not solely responsible for the major decisions of the enterprise. This reduces the risk of mistakes. When deciding whether to retain an in-house IT team or drop a client, every partner must chip in. The shared responsibility structure makes it less taxing to run a business.
You can split the management of the entity to match individual skills. The partner with financial acumen can oversee the corresponding department. If there is a lawyer, he or she can handle the legal aspects of the organization and so forth. It becomes less complicated to implement changes when you have four or five people responsible for the final decision.
2. Capital Investment
Going into business with partners means that everyone contributes to the funding. Capital is one of the biggest hurdles for entrepreneurs, the presence of partners helps solve the problem. The advantage of partnership in this instance is that you can have the financing needed to make the first step and keep the company running for a while.
You get more potential to grow the organization at your own pace without necessarily asking for external funding. The more partners you have in the entity, the more funds are available for operations. In the event you need to source for outside help, the borrowing capacity of a partnership business is very high.
3. Complimentary Skills
A majority of enterprises crash and burn because owners don’t have the necessary skills to tackle some areas of the business. When you have partners, everyone brings a different set of skills and talents. Even when all of you have the same professional upbringing, individual competencies vary on a broad scale.
An IT company may have one partner who is excellent at coding, another who knows web design, and another who is well versed in SEO. Bringing such talents into one organization is one of the advantages of partnership agreements. All it takes is learning how to work together so that the different skills complement each other.
4. Support Structure
The presence of the right people to offer you moral and financial support is invaluable when running a business. Another one of the advantages of partnership companies is the ability to count on the other owners. Some of the decisions involved in managing an enterprise are very stressful and can result in many frustrations.
Even when running your own department, you can turn to your partners when the job gets too tough. They have the same objectives as you regarding the company. So they are in the best position to offer motivation.
5. Ease of Formation
When picking a business structure, the formation procedures are some of the aspects to consider. Partnerships have some of the easiest processes. Once you have the partners, you only have to establish a business plan, fine tune other details, and you are in business, so to speak.
This is one of the advantages of partnership entities that most people appreciate. However, never start a business without deciding who will do what, how to finance the firm, and what happens in case a partner wants out.
The right business partnerships can increase the chances of making profits because you have a combination of different competencies and leadership styles. Partnerships also come with reduced costs of operations. This is because you don’t have to hire professionals to manage different departments.
This business model requires you to share the profits, losses, risks and potential of the company. Analyze the advantages of partnership agreements carefully to understand what you stand to gain with this company structure.