What to look for in a business partner
09 May 2011
By Gayle Bryant, journalist
Advisers who start out in business on their own may find they reach a point where they want to take on a partner. But there is more to this process than just finding someone you get on with.
Greg Chapman, business adviser and author of the book Five Pillars of Guaranteed Business Success says choosing a business partner is like choosing a marriage partner. "The first thing to ask is why you need a partner," he says. "It might be to share the workload, or for their knowledge or connections. Identifying why you want a partner will help you understand and articulate who you are looking for."
Skill sharing
Chapman says both partners should have a shared vision. "There is no point getting together if one person wants world domination but the other wants to stay working in the same suburb," he says. "Trust is another factor to look for, especially as there will be times when you will be covering for each other in the business."
Jim Stackpool, managing director of Strategic Consulting and Training and a consultant to financial advisers, agrees with the marriage analogy. "You need to find a partner who has complementary skills to your own," he says. "These days it is hard to run a practice on your own so you need to break down the skills required and seek a partner who can bring different skills to the table."
Stackpool says firms have three main business activities: client acquisition, client service and business management. "Business management is the one that many people find most challenging," he says. "So when seeking a partner, don’t get a clone of yourself, get one who can take charge of the areas you can’t."
He adds that in his experience, owners are often good at kickstarting a business but not necessarily at growing it. "If this is the case you need to find someone who will be good at changing the way the business operates," he says. "I find the younger advisers coming through are much more skilled in commerce and business as opposed to the older ones who trained in insurance. Often you need someone who can help build a business rather than just offer advice."
Meanwhile, Chapman says you also need to ascertain if a prospective partner has the right attitude for your business and - importantly - whether you like them and would be happy seeing them every day.
Do your due diligence
Carrying out financial and background checks on a prospective partner is crucial. If you have a gut feel that something about a person is not quite right, have it verified by an independent third party.
“There are a number of credit checking agencies as well as ASIC that can help with financial background checks,” Chapman says. “And it is only after you are satisfied with these checks that you should start thinking about the type of business structure you want to set up.”
Chapman recommends that advisers who are considering entering into a partnership should go to an accountant to help them fully understand different types of business structures. These include partnership, trust, or company – each with different levels of liability attached.
“After this you need to put what I call the prenuptial agreement in place,” he says. “This is a document outlining the general rules of engagement. You should have it drawn up by a lawyer who is familiar with business partners and their associated issues. There are so many things that can go wrong that you need to make sure you have clauses in place to mitigate against disasters.”
While it is easy in the "honeymoon" phase of a business partnership to think that nothing could ever go wrong, you should document all procedures and decisions as you go along. You should also agree authority levels, for example, limits to how much each partner can sign cheques for before needing both signatures.
"As businesses get bigger, no one can oversee it all," Chapman says. "So it is important to have strong reporting processes in place. This way you decrease the chance of problems not being able to be resolved and improve the chance of your business performing successfully."
Having a prenuptial agreement can also help if a partner wants to exit the business. This can happen for any number of reasons – age, ill health, a change in personal circumstances – so having a documented exit strategy in place to cope with this situation is important.
"Finally you should review any agreement periodically to see if circumstances have changed," Chapman says. "Taking on a partner has many advantages, especially if you are a sole trader wanting to expand, but it is not a decision to be taken lightly – full due diligence needs to be carried out."
Stackpool agrees and says one of the dangers of taking on a "rainmaker" or someone who just goes after clients, is that they may leave in 18 months and perhaps take clients with them. "I would advise in any new business partnership that you don’t consolidate the union until after 12 months," Stackpool says. "You need to act as a united business from day one but behind the scenes you are monitoring the relationship."