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Six of the Most Important Points to Include in Your Business Partnership Agreement

Six of the Most Important Points to Include in Your Business Partnership Agreement

The most important thing your partnership needs is a partnership agreement, preferably the Business Partnership Agreement Template (BPAT). The partners that I coach in my business all had good intentions when they entered the partnership, and because they trusted and liked each other, many sealed the deal with a handshake or a drink. Unfortunately, that is not a great idea. It’s not even a matter of not trusting, but rather coming to a clear understanding that is understood equally well by all and put in writing to avoid forgetfulness and future misunderstandings.

People mean different things even using the same words. Remember the burger buns? http://www.bizpartnerpro.com/business-partners-and-burger-buns/

Once it is clarified, agreed upon and written it eliminates an “I said, you said” scenario which happens with the best of intentions.

You may have read in my website or earlier blogs, the alarming statistic that 70% of business partnerships fail. My mission is to save more and more business partnerships each year. Part of achieving that mission is encouraging you to create an agreement with your partner before you move one step further in the business.

The Business Partnership Agreement Template (BPAT) allows you to structure your relationship with your partner for the long haul. You and your partner can establish the management responsibilities of each partner, the financial responsibilities, what will happen in the event someone leaves the business, and other important issues. While I hope you never have to take the agreement to court, it is a great tool to use as you live your business, from the beginning to the planned exit strategies.

Below, find 6 of the must-haves for your business partnership agreement.

  1. Financial contributions by the partners.

These should include the amount of equity invested by each partner, how profits and loss will be shared and the pay and compensation of eachpartner.It’s critical that you and your partner work out and record who’s going to contribute cash, assets, or professional services to the business before it opens. Outline these things very specifically. Disagreements over contributions and compensation have doomed many promising businesses.

  1. Restrictions of authority and expenditures.

Without an agreement that outlines the authority of each partner, any partner can bind the partnership (for example – signing a contract with a vendor or incurring a debt for new equipment) without the consent of other partners. Decide how decisions about expenditures will be made and how they will be authorized.

  1. Duties and responsibilities.

You would be wise to outline these duties in advance – similar to a job description. Who is in charge of accounting? Who is in charge of hiring employees and negotiating salaries? Who is in charge of vendor management? Go through the day-to-day operational needs, and make sure everything is covered. Make sure to utilize each other’s strengths. Even so, no partner has a pass on knowing what is going on in all areas of the business and being 100% responsible for the Big Picture.

  1. Provisions for admitting new partners.

My hope is that your business grows and grows, so you may want to eventually bring in new partners. Agree now on a process for doing so.

  1. Dispute settlement strategy.

It is vital to have a plan of resolution in the case of a stalemate between you. Some options used by others are a 49/51 split in the different areas of expertise, for example the one who is most responsible for this area of your business decides. Or you may call in an expert in the field, if not actually to decide, at least to advise. A coach or mediator might by used. You can even decide to flip a coin, but make sure whatever you decide is written into your agreement. You can always change it, but have something there that you discussed and decided.

  1. Have an exit strategy.

An exit strategy should include settlement due to personal injury or death. How assets will be distributed upon dissolution. What if one of you wants to retire and retain ownership or on the other hand be bought out? How is ownership retained by the remaining partner? Discuss and decide on every possible What IF Scenario that you can think of.

I will be happy to respond to your questions and comments.

Is there anything that you had in your partnership agreement that you believe was either beneficial or harmful to your success? Please share your experiences with my readers.

You have made a serious investment, both financially and emotionally to create this business. Don’t skip the steps that will ensure its success.

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