Choose Business Partners Carefully!

I was going to call this “Business Partners from Hell” because if you’ve ever gone into business with the wrong person or persons you will know the agony of grappling with at best a costly dead weight and at worst a total liability. When my children were small I once set up a small business making large tapestry handbags (we were ahead of our time!) and stylish home textiles with the wife of my husband’s friend who had the benefit of an industrial sewing machine. I already knew that the products were saleable as I had hawked them round local posh shops and got tentative orders. Jenny (the name is changed to protect the guilty) jumped at the chance of setting up a business together, though talking about what she was going to do was her best skill. We took orders and set targets for things for both of us to make. I made mine targets and more, she would have weeks when “I had a migraine for three days” and made very little.

Later as orders increased I needed to step up my production to meet them and hope Jenny made at least something. We kept detailed records – supplies were paid out of sales and then the balance accrued in the bank. At the end of the year I worked out that three quarters of income was from products made by me, and only 25% from those made by Jenny (AND she felt exhausted at having done so much). My accountant advised me that the business could not expand (that is, start to pay other staff to make the products) whilst Jenny was sapping the profit.  The business, which could have expanded and been really profitable, was wound up. Don’t ever set up in business unless you have evidence that your partner will match your enthusiasm and work rate.

Checklist for choosing a business partner

Too many small businesses start up as a partnership or company formed by friends or family without any real analysis of whether these are the people to make the company work. They may be nice people, good friends and enthusiastic but this is not enough to ensure the new business has a chance to make it. (However, if they are not even nice people and enthusiastic you may want to think twice anyway). There are X main considerations.

1. Is this person experienced and skilled at an area actually needed by the business ?

This will include looking at qualifications and how these complement your own. There is not a strong case for going into business with clones because there will be gaping weaknesses of areas of expertise from the outset unless you have taken this into consideration and planned for how these gaps in expertise can be plugged. Can you buy in the expertise, say, accountancy or payroll, or get costs for another company to do a particular operation you can’t manage ?

1. Is this person hard working?

We can often choose our friends because they are pleasant and good company. These qualities are not going to be enough unless you are willing to put up with working twice as hard as your partner. If your friend is relaxed and laid-back this may really get on your nerves if it turns out that he/she likes to chat instead of getting down to work, comes in late or goes early and keeps telling you to relax!

1. Is this person  putting capital into the business?

You may choose your partner  because he or she is capitalising your business as an investor and will not be expected to actually work day to day in the company. This is obviously OK though depending on how successful your business is, you may regret offering a 50% share in your business if the business begins to have a turnover of millions and the investor put in only £5000. It is better to get financial and legal advice before making any major decisions of business share. If you are the one putting start-up capital into your business then you should be sure that your partner is offering valuable skills and experience the business needs.