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Deciding On A Partner Part 3 From Michael Barbarita

by | Michael Barbarita

Deciding On A Partner – Part 3

Partnerships can be a terrific way to pool resources and a great opportunity to increase your capital reserves. 

However, there are some things that you need to know about having a partner that are very important.

When two or more people get into business together there is a risk that needs constant assessment.

However, more importantly, there is and should be an extensive thought process as to whether or not it is a good idea to partner up in the first place. Getting involved in partnerships is a major decision in one’s business life.

Partners in business together must have the following characteristics:

Must Be Logical And Unbiased In Their Thinking

It is not all about one partner. Sometimes the logical business decision can disadvantage one partner over the other(s).

It is critical that the partner(s) being disadvantaged is logical in their thinking to be able to separate what is right for the business from what is right for the disadvantaged partner.

If this is not the case the partnership is in for some rough going.  

Is your partner or partner to be logical and unbiased in their thinking?  It is critical that they are as you will see in all of the other characteristics.

Must Eventually Be At Peace With All Decisions

Although it is healthy to have different opinions and constructive arguments, eventually all partners must understand that a decision needs to be made, and although it may be contrary to one partner’s opinion the dissenting partners must be at peace with the decisions in order to bring the group back to harmony.

If this does not happen grudges are formed leading to further problems in the partnership. 

This especially happens when there are only two partners in a 50-50 partnership (sometimes referred to as a dual suicide) and there is a one to one tie in a decision that needs to be made. 

One partner wants to go one way and the other partner wants to go the other.  The first thing to do is to see if it makes any sense to do a hybrid of both decisions. 

This means take something from each decision to make a final decision.  If that does not make sense then the partners need to collectively determine if one partner has more expertise in the area being discussed than the other partner.  

This is when egos need to be cast aside.  If one partner has more experience and expertise in a particular subject then it is usually best to go with the decision of that partner. 

Once again you are assuming that the partner with the expertise is logical in their thinking (see above). 

If the issue is still not settled, then each partner has to look at the risks and opportunities of each point of view. 

When that is done and egos are cast aside and the risks and opportunities of each point of view are carefully evaluated, then one partner usually sees the other point of view. 

Can you do this with your partner or partner to be?  Are you at peace when your decision is not accepted?  Is your partner or partner to be at peace when their decision is not accepted?

Partners Cannot Be Bitter If They Get Diluted Or When The Ownership Structure Changes

There are many times when a business needs more money and the partners have to ante up or look outside for other funding sources or even close the business.

Sometimes there are partners who do not have the money or do not want to invest in the business at the particular point in time when money is needed.

These partners who do not participate financially cannot be bitter when their stock ownership gets diluted.

One reason a partner may become bitter is the partner who is not putting up money may have been the founder of the business and is now being diluted to where they are a minority stockholder. This is a difficult pill to swallow for a founder. 

However, it is only fair to the partners who are risking the additional capital that they get additional stock for the risk they are taking.

Dilution can also happen when none of the company’s partners do not have the money to keep the business going and need to go outside to get money.

The dilution when going outside tends to anger minority partners but it is only fair and it is part of the rough and tumble world of commerce. 

There will be more about the rough and tumble world of commerce in part 2.

I hope I got you thinking.

Deciding On A Partner Series

Deciding On A Partner – Part 1 

Deciding On A Partner  – Part 2 

Deciding On A Partner <- You are here

 

Michael Barbarita

 About Michael Barbarita

Michael Barbarita has owned and operated Retail, Manufacturing, and Service companies over the last 30 years. President of Next Step CFO Empowering Small Business Owners to earn multiple 6 figures in profit and build 7 figures in value. His vision is to give every entrepreneur an opportunity to be more successful in their business and to help them realize their dreams and create business value.

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