Finance Globe

U.S. financial and economic topics from several finance writers.
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Becoming Self-Employed - The Pros and Cons of a Partnership

When you start your own small business, you'll have many decisions to make. One of them will be whether to tackle all the responsibilities of business management as a sole proprietor, or to get some help. Having one or more business partners can alleviate much of the burden that you would otherwise have to handle on your own in running a business. As with any business choice you make, there are pros and cons to a partnership versus going it alone. Think about your reasons for wanting a partner, as well as how having a partner will affect your business, before you shake hands and seal the deal.

Pros of a Partnership
  • more people can bring more assets to the business - Many new businesses require significant start-up capital; a partner can share some of that cost. They may already own some of the equipment the business will need, or they may own property that is in the perfect location for the business.
  • less for you to do yourself - Sharing the workload with a partner can shorten your workday, and give you more time for yourself. A team of two can often get a job done in less than half the time it would take one person to do the same job. Efficiency goes up when you have someone to help you lift, measure, or organize. Efficiency also goes up when you work in an assembly-line fashion, even if you only have an assembly team of two.
  • creativity spurs creativity - One person may sometimes feel stuck in making business decisions. Maybe you're not sure how to go about marketing, packaging the product, or what prices to charge. You'll be able to come up with more unique business ideas when two or more people start tossing around thoughts and experiences. Their good ideas will spark your good ideas, and the creativity will begin flowing.
  • positive encouragement - Many business owners sometimes doubt their abilities, their decisions, or their direction. It can be lonely if you're the only one who understands your unique position. Your partnership forms an instant support group; you'll have someone else who is experiencing the same thing you are. You'll have someone to lean on when you need reassurance about the direction of the business.
  • may provide balance - Good business partners complement each other. I don't mean that they tell each other how nice they look, but that each individual adds their qualities and skills to the equation, which, as a whole, cover all aspects of running the business smoothly. One partner may be strong with number-crunching and business organization, while the other has a creative streak and is good at dealing with customers. Or, one may be up-to-date on the latest trends in the industry, while the other knows what classics will never go out of style.
  • someone else can run the business when you're away - You won't have to put your business on hold when you have an emergency or want to take vacation. Your business can continue to profit, and you can come back to a smooth operation, thanks to your partner. No need to hurry to play catch-up, or return the multiple phone calls that amassed while you were gone.
  • may provide you with an "out" - A business owner commonly has to deal with pushy salespeople or customers that want to bargain down your price. They may not give up easily when they feel they only have to convince you, but you can often put a quick stop to their tactics by letting them know you'll have to check with your partner before you can give a final answer.

Cons of a Partnership
  • you'll have to agree on business decisions - As partners, you'll have to come to an agreement about how the business is run, the location, marketing strategies, equipment rental and purchases, whether to hire employees, and how to deal with customer complaints. You may be stuck at a stand-still if you're partner doesn't agree with the big plans you have for the business.
  • you'll need to trust each other - Trust is vital to any partnership, whether business or personal. You have to be sure your partner won't cash out business assets and flee the state, or run up personal expenses on the business credit card. You also have to be sure your partner won't put business profits into their own pocket before they share with you, or steal the partnership's customers, while leaving you out.
  • you'll share profits - You know how much you need to make to sustain or improve your lifestyle. If you have a partner, your business will need to make twice as much, or even more than that if you have more than one partner. Having a partner means you'll get a smaller slice of pie.
  • you'll share debts - Business partners are responsible jointly and individually for business debt, so creditors can go after both of you for payment, or they could just go after you. It won't matter if your partner placed a huge order for something that you didn't agree on; if it was ordered by either partner, you are both responsible for it.
  • you'll be liable for partner's bad business decision - You won't always be there for your partner to consult with. You'll need to trust that your partner has good business sense, won't make promises the business can't keep, and knows how to respond to problems for damage-control. You can risk losing your personal assets if your partner's actions lead to injuries, property damage, or a lawsuit.
  • can ruin a friendship if things don't work out - Too many enter into a partnership with a long-time friend before considering their business compatibility. It's easy to like someone when you don't count on them for your financial well-being, but things can change quickly when you later realize that their ideas don't mesh with your ideas, and it starts to affect your bank account. Just like a failed marriage, old friends can become resentful and distant when a partnership goes sour.
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Thursday, 30 November 2023

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