Trick or Treat? The Pros and Cons of California Business Partnerships

Posted by: kevensteinberg
Category: Areas of Practice, Blog, Business Law
Pros and Cons of Business Partnerships

Going into a haunted house by yourself is scary, and starting a business on your own can be even more daunting. Having a friend by your side can make the experience easier, which is why so many new business owners consider starting with a partner. 

You might consider forming your California business with a partner because you have a friend with similar interests and you think you could work well together bringing a joint passion to life. Or you may need an additional source of capital, someone who can share the financial burden of starting a business. You may have a friend who you know is better at sales or management than you and you want to bring them in to help share the workload. 

No matter the reason for choosing to start a business with a partner, it’s no surprise that when people talk about business partnerships, they often compare them to marriage. In the spirit of Halloween, it’s also fitting to compare a business partnership to a couples Halloween costume. Like both marriage and a couples costume, business partnerships require compromise, shared vision, trust, and commitment. And when they work, they can be incredibly exciting and fulfilling for everyone involved. 

But partnerships, like marriages and costumes, don’t work for everyone. Some even become horror stories. If you want to start a business with a partner or you’re thinking of adding a partner to your California business, it’s important to understand both the tricks and treats—the pros and cons—of business partnership. With the common tricks and treats exposed, you can know if business partnership is right for you, allowing you to make the best decision for your business. 

Treats: The Pros of Business Partnerships

Successful teams like Irv Robbins and Burton Baskin of Baskin-Robbins, Bill Hewlett and Dave Packard of Hewlett-Packard, and Steve Jobs and Steve Wozniak of Apple are inspiring examples of how partnerships can go right. They showcase the benefits of working with someone else as you start or grow your business. So, what are the pros of creating a business partnership? 

  1. You have a built-in support system. Starting a business can be a lonely affair with long hours. With a business partner, you will have someone at your side who will share the emotional burden and strain of starting a business. In successful partnerships, your partner will care about the business as much as you do, sharing the weight and providing support and advice when hard decisions need to be made. 
  2. You have more capital upfront. Starting a business isn’t cheap. Depending on the kind of business you are starting, you may need to cover the cost of inventory, retail space, equipment, office space, or other overhead costs. A partner can contribute valuable capital to the business, providing additional financial security and lowering the stress of funding an operation alone. Sharing the financial responsibility provides an advantage in getting your business off the ground. 
  3. Your partner may have skills you don’t. One of the biggest pros of having a business partner is that the right partner can complement your skills, lending greater expertise and knowledge to your company. Every person has limited knowledge and experience, and there are bound to be areas of business practice that don’t play to your strengths. A partner can add strength where you are weak and increase opportunities for growth in your business. Having a partner with additional expertise will also allow you to divide up tasks according to your strengths, saving you time, effort, and stress. 
  4. A partner brings another perspective. The adage “two heads are better than one” applies just as well in business as in other aspects of life. A business partner will bring not only their skills and expertise, but also their experiences and unique perspective to your business. Every day you will make decisions for your company and face challenging questions. With a partner, you have the benefit of feedback for every idea and decision. A partner can help you see details you might have missed on your own and drive you toward a decision you might not have considered otherwise. A partner can also bring creative and innovative ideas to the business, helping the company move progress through time. 

Tricks: The Cons of Business Partnerships

While there are great benefits to a business partnership, there are also significant disadvantages, which is why many partnerships fail and why many choose the sole proprietorship route instead. According to census data, only about 8% of all businesses in the United States are partnerships compared to the 73% that are sole proprietorships. Building a successful partnership isn’t easy; and whether or not your partnership lasts, you will likely experience at least one of these common cons to business partnerships. 

  1. Conflict is inevitable. Whether your business partner is a complete stranger or your best friend, your spouse, or a close family member, you are going to have disagreements. You and your partner will be making decisions, both large and small, about the business every day. You might find you and your partner disagree on too much and face a stalemate with every decision. You might even face your own horror story and get sick of working with each other, deciding to end the partnership and possibly damaging your personal relationship as well. If your partnership is going to survive, you’ll need to communicate and compromise. 
  2. It can be tricky to divide profits and ownership equally. In a partnership, you have to share the profits of the business with someone else, rather than keeping all the profits for yourself. One of the most common reasons that business partnerships fail is because one partner feels they are being unfairly compensated for all the work they do. Even in an equal 50/50 partnership, and perhaps especially in a 50/50 partnership, one partner may feel they work harder than the other partner and that they deserve more than half of the profit and ownership for that work. Determining each partner’s responsibilities and the value of their contribution can help establish expectations early on and help determine the appropriate split. 
  3. Partners might have different visions for business. Having different long-term goals for a business is another common reason that partnerships fail. When you are first starting a business, it can be easy to get caught up in the excitement of opening and in the dreams of a successful venture. But as a business grows, it’s vital to have a defined vision and long-term goals to drive the business forward. If one partner sees the business as a small, modest venture and has no wish to expand but another partner has ambitious plans for expansion, there’s going to be trouble. It’s important to find a partner who shares your vision for your business so you will both work towards the same goals. 

Don’t Let Your Business Become a Partnership Horror Story: Get Legal Help Today

If you think a partnership is right for your business, the experienced team at Steinberg Law can help you. Whether you have known your partner forever or you are new acquaintances, it is crucial to start with a thorough partnership agreement. Keven Steinberg and his team have years of experience working with partnership formation and dissolution. They know how to help partnerships thrive and how partnerships can fail. The team at Steinberg Law will help ensure you and your partner, or partners, have a clear agreement so you can move forward confidently and know exactly what to do if disagreements arise or if things go sour. 

Start your California business partnership right by contacting Steinberg Law today. 

Author: kevensteinberg