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Jogger with Lateral Stripe Spring/summer Wood Wood M6H6XTn
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Once the decision is made to start a business together, you should create a partnership agreement with help from a lawyer and an accountant. Take this step no matter who your partner is. People with strong personal connections may feel certain that their supposedly unbreakable bond will help them overcome any obstacles along the way. Big mistake. Get a written agreement.

Every agreement should address three crucial areas: compensation, exit clauses, and roles and responsibilities. Include who owns what percentage of the business, who is investing what, where the money is coming from, and how and when partners will be paid.

Typically partners set up equal ownership and each contributes 50% of the initial investment. But terms can vary greatly. For instance, one partner might contribute more money if the other partner can bring in expertise or business contacts. As the business grows and changes, adjust compensation accordingly. For example, partners may agree to work initially without compensation, and to get paid after a certain revenue target is reached. In addition, if the business partnership brings on more people or if a particular partner is putting in more or less time, building some flexibility into the contract can let you adjust payments.

The agreement should also cover how you plan to exit the business. Include clauses that spell out cases in which one partner is obliged to buy out the other’s interest — for instance, if one wants to quit the business. For instance, it can state that the other partner must buy him or her out for a prenegotiated percentage of the business’s value.

If neither partner wants to continue the business, partners can also liquidate and divide all assets. It’s also a good idea to settle on in advance how to assess the total value of the business upon dissolution. The agreement should specify who appraises the business and the methodology to use.

Outline your expectations for how you’ll operate your business. Clearly delineate the roles and responsibilities of the partners based on their skills and desires. This will eliminate turf wars and clearly show employees to whom they should report.

Establish routines for daily communication. For example, agree to talk twice a day at designated times and to re-evaluate their goals on a regular basis. At least once a quarter, sit down and discuss how you envision the future of the business and what steps to take in getting there.

Addressing these issues up front will help you better focus on your business later. How you work out the details of setting up a partnership could be an indicator of how well or poorly your prospective venture will operate. Inevitably, some potential partners will realize through the process they weren’t meant to be.

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