Partnerships can be a great way to grow your small business, but they also come with risks. You may have to deal with conflicts, liabilities, or losses that affect your reputation and finances. How can you protect yourself and your business in a partnership? Here are some best practices and strategies to consider.
The first step to protect yourself in a partnership is to choose your partner carefully. You want someone who shares your vision, values, and goals, and who has complementary skills and resources. You also want someone who is trustworthy, reliable, and respectful. Do your research, check references, and have honest conversations before you commit to a partnership.
Local businesses must be wise when evaluating partnerships to minimize leakage and waste. Opting for collaborations with global brands when confined to a single market can lead to inefficiencies and missed opportunities. Small businesses must align with partners where mutual value creation occurs within their footprint. Focusing on collaborations that amplify local impact ensures a symbiotic relationship, shielding businesses from potential drawbacks. By strategically selecting partners whose goals align with the specific market, small businesses can safeguard their resources, enhance efficiency, and cultivate a more meaningful and sustainable partnership that resonates with their local audience.
Trust but verify. Have a Private Investigator run a full background check on any partner you may be considering and then ask the partner if their is anything in their past they think they should disclose to you.
A partnership agreement is a legal document that outlines the rights and responsibilities of each partner, as well as the terms and conditions of the partnership. It should cover important aspects such as the ownership structure, the profit and loss distribution, the decision-making process, the dispute resolution mechanism, and the exit strategy. A partnership agreement can help you avoid misunderstandings, conflicts, and lawsuits in the future.
A partnership is like a marriage and a prenuptial. Go through every detail now so when you get a “divorce” it’s all clearly laid out and no one gets “amnesia”.
Another way to protect yourself in a partnership is to define your roles and boundaries. You and your partner should have clear expectations and accountabilities for each other, and respect each other's expertise and autonomy. You should also communicate regularly, provide feedback, and resolve issues constructively. Avoid micromanaging, interfering, or undermining your partner's work.
Your intellectual property (IP) is your valuable asset that gives you a competitive edge in the market. It includes your ideas, inventions, designs, logos, names, and other creative works. You should protect your IP from being copied, stolen, or misused by your partner or third parties. You can do this by registering your IP, signing non-disclosure agreements, and enforcing your IP rights.
As a partner, you may be exposed to various risks and liabilities that can affect your business and personal assets. For example, you may be liable for your partner's debts, negligence, or misconduct, or you may face legal claims from customers, suppliers, or regulators. You should manage your risks and liabilities by choosing the right type of partnership structure, such as a limited partnership or a limited liability partnership, that limits your exposure. You should also obtain adequate insurance coverage, such as general liability, professional liability, and errors and omissions insurance.
Have your partner indemnify you of any liabilities and hold your shares in a Trust so you are fully protected. Litigation is costly and can take years.
Finally, you should review and update your partnership regularly to ensure that it is still working for you and your business. You should monitor your partnership's performance, evaluate your partner's contribution, and address any changes or challenges that arise. You should also be open to feedback, learning, and improvement. If your partnership is no longer serving your interests or goals, you should be prepared to renegotiate, modify, or terminate it.