Most businesses desire to grow at a healthy rate--constantly.  One of the primary resources an owner utilizes is that of finding a new business partner (or investor) to help them grow their company. As a rule of thumb, honestly consider when you’re choosing a business partner,  that it is just as similar and AS important as choosing a  marriage partner.  For the sake of your business and sanity take the time to carefully evaluate your options.

To assist you, consider these two pointers:

(1)   Do not Take on a Partner Just for the Money

     One of the most important rules to remember when considering taking on a new partner is that money is a commodity. Though it is rarely free and most often comes with restrictions—rules, ratios, guidelines, interest charges, as well as the responsibility of repayment—money is still something that is tangible unlike the intangible characteristics of a service or an individual themselves.

     Often there are many other sources of funds available that do not involve taking on a new owner and they are a far less expensive option than selling the business's equity. The best test of whether or not money is a critical component or just a commodity is the preparation and review of a well-crafted business plan.  This will often tell a story and reveal whether a cash infusion via equity ownership will result in a rate of return well in excess of what is lost as a result of equity ownership.

(2)   Evaluation of Prospective Partners

     After you have watched and reviewed potential partners viability in your business it is time to consider some of the more quantifiable aspects of your potential new partner. I would set a trial period in which goals would be set for the potential partner to achieve consisting of several tangible as well as intangible goals. These should be well documented and shared in advance so that you both might have an active dialog and written record of what your prospective partner is to achieve within the allotted period. This will give you added information on which to measure an individual and their ability to perform as expected and agreed upon.

     You will also want to give careful consideration to whether adding a partner will actually contribute or detract from an initial owner's value of his investment. For instance, if the business grows slightly but now there are more owners to consider, then you will be assured that most often the originating partner's income will fall. Hence, if bringing on a new owner brings to the table talent and resources that were otherwise unavailable and might enable the business's growth model to catapult, an entirely different answer might result.

     After carefully evaluating you still opt to take on a new partner then it is time to begin the process of actually doing so. We would suggest that all partners be required to sign a shareholder/partnership agreement detailing their responsibilities, rights, and obligations before the stock/ownership is actually granted. A well drafted shareholder agreement will cover such things as what happens if one partner wants to sell, retire, becomes disabled, or even dies. It would also include the methodology for determining the purchase price of an owner's interest and include how the monies would be paid out-whether in a lump sum or in intervals.  Executing such a document will also give both (all) parties involved with (the company and the owners) sufficient protection. 

     We frequently work with business owners in this most critical planning aspect of their business. We can help you evaluate your options.

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