Should You Take on a Partner When Buying a Business?

When it comes to business, not only can two heads be better than one, but two bank accounts can be too. A partner can help you by pooling financial resources for a larger down payment and may improve your chances of getting the finances you need.

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However, the right partner is not necessarily a friend or relative who simply wants to get in on the action; rather, he or she should be someone who is going to strengthen your financial position when purchasing the business, add expertise in running the business, or both.

When looking for a business partner, look for someone whom you trust implicitly and who has the same vision for the business's future. Flexibility on the part of both parties is absolutely essential. No two individuals will agree on everything, and in a business partnership, like in a marriage, both parties must be prepared to compromise.

Only partners who are aware of their own strengths and weaknesses can effectively divide up the work and take on the tasks that suit them best. Once you have assessed your own strengths and weaknesses, look for a partner who will complement your skills, knowledge, and interests.

Another type of partner is a silent partner — someone seeking a sound business investment but not looking to get involved with day-to-day operations. However, not all silent partners are silent. Some will have demands and want things done in a specific manner, even if they're not part of the everyday operation of the business. Thoroughly interview your prospective "silent" partner in advance to find out precisely how involved he or she plans to be.

Be sure to draft a partnership before you purchase the business. This partnership agreement should explain clearly how either partner can leave the business should they need to, what will happen if one partner dies or becomes disabled, and how disagreements regarding the business will be settled.

The type of business entity is another matter that needs to be addressed. Most small businesses you might purchase will be either sole entrepreneurships or general partnerships. However, you can — and should — consider setting up a limited liability corporation (LLC) or S Corporation before making the purchase. This will help limit your personal liability, should the actions of your partner result in litigation.

Partnerships can be very successful from a financial standpoint. If set up correctly between individuals who are flexible and get along well with one another, a partnership can reduce the level of stress associated with buying and running a business. Owners can run ideas by each other, cover for one another, and allow for the other to take a much-needed vacation.