But how do you know if this path is right for you? In this article, we’ll walk you through what business partnerships look like, how they can support your goals, and how to find the right business partner for your business.
How can a business partner help?
Every entrepreneur has certain things they do extremely well, along with areas where they need a bit more support.
A business partner can help you fill in those areas where you need support—they’re like the missing piece to your entrepreneurial puzzle. Maybe you’ve got a fabulous knack for product marketing, but you could use some help with distribution. Or you’ve got solid product design skills, but you’d rather not spend your time doing the bookkeeping.
The best business partnerships are ones that allow both people to do what they do best for the business while sharing the larger responsibilities of strategic decision-making and setting long-term goals (unless you’re looking for a silent investment partner—we’ll discuss that more later).
Here are some other ways a business partner can help you:
- Share the financial risk associated with starting or growing a business
- Assist you in developing or evolving a business plan
- Provide additional skills, time, and knowledge
- Help brainstorm ideas for new products, new directions, and new opportunities
- Gain potential tax benefits if you set up a general partnership
- Expand your network and boost your credibility
How to find a business partner
If candidates don’t immediately come to mind (hey, wonder what your fifth-grade lemonade stand partner is up to these days?), then it’s time to dig deeper within your own network and potentially expand into other channels.
A few good options are below.
1. Your professional network
The best place to start looking for a business partner is within your own network—co-workers, former colleagues, other professionals you know from the industry, and contacts from your personal network like friends or family members.
One of the biggest benefits of starting with people you already know is, well—you already know them. And while you may not have deep insight into their work style, values, and their skillsets, you likely have at least some familiarity with how they operate and what they’re good at.
2. Your online network
If you’re on a social platform like LinkedIn or a member of a professional community online, put out some feelers. You can connect with people who have the skills and experience you’re looking for and talk in person or over the phone with anyone who seems like a potential good fit.
If you haven’t yet started your business and are seeking a co-founder, there are several online platforms that are specifically designed for this, including:
3. Industry gatherings
Attend a conference, join a meetup, or sit in on a discussion panel with your local Chamber of Commerce. Participating in events—even remote ones—can be a valuable way to meet others in your industry and grow your network. That’s a winning situation, even if it’s not where you find your business partner.
4. Courses and classes
Learn some new business skills or brush up on old ones with an entrepreneurship-based course or class. You’ll strengthen your own capacity while also meeting new people who likely have similar goals and interests.
For in-person or hybrid classes, try your local chamber of commerce, local universities, and other local business groups (you can find these on sites like Meetup). If you’re looking for online courses, a few sites to try include EdX, the Small Business Association’s website, and Coursera.
How to vet a potential business partner
Once you’ve identified someone whom you think could be a good fit, it’s time for the most important step: vetting.
Any business partner you team up with is going to become intimately involved in everything from your company’s finances to your growth strategy. Therefore, it’s crucial that you take time to ask the right questions and learn about the potential partner’s background. These are a few steps you can take to properly vet potential candidates and ensure a successful partnership down the road.
1. Ask for a resume and references.
The first step is to ask for credentials, just as you would from a potential new hire. Do a few Google searches of their name and former employers to make sure everything matches up, and don’t neglect to call up any references they’ve given you.
2. Make sure their skills, values, and mindset complement yours.
It’s often said that a business partnership is like a marriage, and that’s not wrong. When you’re working with someone closely on a business that you’ve poured everything into, emotions can run high.
The skills that person brings matter a lot—but so do their values, work style, leadership style, and perspective. A partnership can’t thrive if the two of you can’t get along, so pay attention to any issues that could lead to conflict down the line.
3. Check the quality of their past work.
Has your potential partner brought a business idea to life before? Have they successfully exited a startup? Do they have a previous business partner with whom they’re still on good terms?
These sorts of things can be good indicators of a potential partner’s overall ability (although, it’s important to note, first-time entrepreneurs can have just as much to offer as those who’ve already had a success. It all depends on what you need and what you’re looking for).
4. Bring them on for a trial period.
Before you commit to a business relationship, it may make sense to give the partnership a trial run. Think of this as the engagement period before you officially tie the knot.
Agree with your partner on a time period and scope, and see how everything feels. During the trial, you can get a better idea of whether their skills actually do complement yours, how the two of you work together, how you communicate, and whether they understand your business and what you’re trying to do.
At the end of the trial, you can either ask them to come on full-time, or amicably go your separate ways.
5. Ask them about financial expectations.
Talking about money can be awkward, even for people who’ve been working together for a long time. Still, it’s essential to have this conversation before you team up with a partner to make sure you’re on the same page and have similar expectations.
The way you set up your business will have a lot to do with how the financials are set up. Are you envisioning a general partnership (which is the most common framework for business partnerships)? Or are you considering a limited liability company (an LLC)? What does the other person want or expect?
The structure of your partnership will affect how profits, taxes, and losses are shared, so this information needs to be agreed upon in detail before you proceed.
How are partnerships taxed?
If and when you decide to bring on a partner, you’ll need to structure your business entity accordingly.
The most common tax structure for small businesses with more than one owner is a general partnership. In a general partnership, each partner has an equal control of the business and is equally liable for the business’s debts.
There’s also a limited partnership option, in which at least one partner has limited control and liability in the business. Often called a “silent partner,” limited partners typically are investors who aren’t involved in the day-to-day management or decision-making. Should your company go under, they would only be liable for the amount of their initial investment in the business.
For taxation purposes, partnerships are considered pass-through entities; in other words, profits and losses “pass through” the business directly to each business owner and are taxed as personal income. These profits also qualify for the pass-through deduction, which allows you to deduct 20% of your share of the business’s profits.
This differs from a corporate tax structure, in which business earnings are taxed twice: first as an entity, and then again as personal income for each shareholder. This is known as double taxation.
To report your business’s profits and losses, you’ll use IRS Form 1065, also known as the “Partnership Tax Form.” Then, each partner prepares their own Schedule K-1, which is part of their individual tax return, and reports their individual share of the business’s profits and losses.
How Bench can help
Bookkeeping and accounting take up a significant amount of time, especially when you’re running your company alone. Bench’s monthly bookkeeping services can take these functions off your plate, so you can focus on finding the right business partner. We even provide you with a year end financial package with all the information you need to file your taxes (or we can file them for you). Learn more about how bookkeeping with Bench works.
And if you’re looking for someone because you need help managing your financials, Bench could be the partner you need.
Make sure you sign a partnership agreement
So you’ve found a great business partner, you’ve agreed on the financial split, and you’ve completed a successful trial run. Now all that’s left is to get to work—almost.
Before you make anything final, put your agreement in writing. With a written, legally binding document, you and your partner are both protected legally, plus it will give you a structure within which to settle disputes and, ideally, avoid or minimize conflict.
Any partnership agreement should be drafted with the help of a business attorney and should include provisions around:
- Profit-sharing, salary, and compensation
- Tax structure
- Intellectual property rights
- Decision-making process (i.e., do you want to require unanimous consent for major business decisions?)
- How to handle bringing in a new partner or the exit of an existing partner
- Succession planning
- Allocation of partner duties
- How you’ll resolve disputes
This agreement can always be amended as the business grows or changes.
If you’re beginning this journey, you’re to be congratulated—your business is growing! Starting your search may feel overwhelming, but with some thorough planning and due diligence, you can find a great business partner who can help you take your company into its next phase of success.