Partners for profit: from limited partnerships to corporations, forming a successful business alliance, takes time planning and research

Black Enterprise, Jan, 1998 by Roz Ayres Williams

From limited partnerships to corporations, forming a successful business alliance takes time, planning and research

STARTING A BUSINESS CAN MEAN TRAVELING some rugged terrain Whether you're planning to run an aggressive race in a high-stakes market or just turn a hobby into a profitable home-based venture, your basic business survival kit should be equipped with capital, customers, common business sense and a competitive edge. In many cases, it's smart to travel with a partner or two who can help shoulder the load or add whatever you're missing.

Plainly put, a partnership is a business where two or more people agree to share the profits. When partners click, the results can be spectacular; when a partnership goes sour, it can be a real kick in the assets.

There's only one way to go about partnering, say those who know, and that's very carefully.

Picking the right person or people to go into business with is just part of the process. You must also choose the legal form of partnership that will work best for you and your company, set up criteria that will enable you to work productively together and establish protective measures that will help you part peacefully when and if the time comes.

KNOW THY PARTNER

Eric Dawson, an art director at Prentice Hall in Ramsey, New Jersey, has been thinking about going into business on the side with childhood friend Bruce Jackson. Their plan is to purchase commercial real estate and rent it out. "Whatever venture we ultimately decide on, we will probably structure our partnership so that I put up most of the money for the down payment," says Dawson, who has known Jackson for 30 years. "Bruce, who came up with the idea to partner, could pay me back from his share of the profits over time, or agree to handle most of the management of the property."

Dawson feels that his friend's trustworthiness and willingness to work make him a good bet as a partner.

Maybe. But to be on the safe sided Dawson should do a little more homework, according to business experts.

Partnering with friends or relatives can work well if you remember one thing: know who you're going into business with. "No matter who the person is, check out the background thoroughly before you take him or her on as a partner," says corporate and business attorney Robert Taylor of East Orange, New Jersey. "That goes for your brother-in-law, your best friend, even your spouse."

He advises running background checks on a potential partner's credit history, arrest record, marital or other personal relationships, tax history and past business relationships, if any.

For instance, find out how the person manages personal assets and how they're set up. Is the person a responsible money manager? Does she or he owe any back taxes? Has the person ever filed for bankruptcy? Are there liens on his property? A partner's poor credit can prevent your company from obtaining loans and lines of credit. Ask the prospective partner for permission to check into his or her financial past, including obtaining a credit report from Experian, Equifax or any of the other major credit reporting companies. Be wary if the person says no.

If you plan to have your prospective partner actively involved in the running of your business, you'll need to know his or her professional strengths to determine if they complement your own. For example, if you're an introverted person who prefers working behind the scenes, you may need an extroverted partner who can schmooze with clients, make presentations and bring in business. If you're poor with figures and details, it would help if your partner were a financial whiz or at least could understand the books.

In addition to skills, you should also look at personal factors, such as the person's marital situation. How stable is it? If married, how supportive of the business will the spouse be? Spouses can greatly influence the amount of time and money a person gives to the business.

If your partner is going through a divorce, you may find your own assets under scrutiny during discovery proceedings to determine the spouse's true value, says Taylor. Also, your partner's shares may be switched to the spouse's ownership during a settlement, making the spouse an unwanted partner in your business.

Also take into account the person's health history. A chronic problem may prevent someone from fulfilling the bargain or could cost your company thousands in medical expenses down the road.

Ask other people what they know about your potential partner. Check with relatives, former co-workers, clients or other associates to determine how the person operates in social or professional circles or manages people, projects, time or money. Does the person have integrity? Are there habits that might prove embarrassing in front of clients?

Also, ask yourself if you can get along and if you share a common sense of values, which are two factors many partners consider critical to their success.

Nearly four years ago, BE published a story by Charles Jamison, who shared the reasons his New York advertising agency, Jamison & Associates Advertising Inc., went belly up in 1992 (see "Why My Business Failed," June 1994). Among the problems was a partnership that soured, leaving Jamison several steps behind even as he transitioned his business from Jamison & Leary Advertising to a solo act. According to Jamison, he and his partner, Kathryn Leary (now president and CEO of Leary Group Inc., in West New York, New Jersey) had the same goals but two radically different approaches to running an agency. For instance, the two had different philosophies about landing new business. "My partner believed one had to socialize and make contacts," says Jamison. "I believed you had to create a legitimate reason for the company to need your services." The clashes led to Leary leaving.