Howdy, Partner

You know the saying, “Two heads are better than one.” But do you know that two businesses can also be better than one? An increasing number of small businesses are forming alliances with other small companies to get the job done right.

These general partnerships are particularly popular between consumer-based businesses. Interior designers are teaming with landscape contractors to offer indoor and outdoor services, and mechanics and auto detailers are packaging their services to create a one-stop shop for their customers.

Business partnerships don’t just benefit the consumer, however; they also decrease marketing and facility costs, widen networks and help expose your business to an entirely new pool of customers. Before jumping into a partnership of your own, consider what type of agreement works best for your small business.

For some small-business owners, it makes the most sense to become a preferred vendor for a company that offers complementary services to receive referrals. Others may decide to create a loose team to tackle projects here or there. And still others may form a legally binding partnership if the two businesses plan on collaborating often.

To find a partner for your company, begin by brainstorming a list of business owners you have met and worked with. Your perfect partner may be right in front of you on that list. If not, consider joining a small-business networking group so you can get to know other business owners in your area. You might also try contacting an interesting business you come across in the yellow pages or in passing—gather information on the services they offer, their customer base and more, then consider approaching them about teaming up.

Once you’ve identified a suitable partner, make the alliance as trouble-free as possible by ironing out these details upfront.

Vision. First, make sure your goals and aspirations for the partnership align. “It’s absolutely critical that this be acknowledged upfront because this is typically the downfall of partnerships,” says Carl Robinson, Ph.D., managing principal of Advanced Leadership Consulting, a Seattle-based business-consulting firm.

Robinson explains that if one company is interested in building a sustainable team and the other is interested in having the business acquired in the future, a legal partnership is hard to maintain. In this situation, a referral agreement would be the most beneficial for both businesses. Address these concerns before a partnership is formed to keep everyone content for the long haul.

Roles and responsibilities. Discuss which partner will complete which task even if it seems obvious. This can be fairly cut and dry if you’re creating an informal partnership, but if you’re signing a legal partnership agreement, this step is imperative. Decide who will draw up invoices, complete paperwork, arrange meetings and so forth.

Decision making. Who has the most pull in the partnership? For a legal collaboration, a 50-50 split may seem like the fairest model, but it has its downfalls. If the two companies have equal say in decision-making, they’ll eventually come to a standstill upon disagreement.

“To prevent deadlocks, I generally recommend people have an additional person involved in the partnership,” Robinson says. He suggests splitting it 40-40 and giving the additional person a 20-percent stock in the company. “That way, the person is given some authority to break a deadlock,” he says. If you decide to bring in a third party who will have stock in your company, make sure the person is qualified to add value; not simply function as a tie-breaker for tough decisions.

If bringing in a third party doesn’t work for your business, consider splitting the company 49 percent to 51 percent.

For informal collaborations between two small businesses, determine who will take the lead for each account or prospect you are pursuing together before you begin any new work together.

Camaraderie and loyalty. Keep everyone on board by meeting regularly—not only to discuss business decisions but to also spend time with each other. “I work with executives all the time where I’m asking them to ask their partners what they need to do their job well,” Robinson says. By meeting monthly, you can make sure everyone’s needs are being met. “You really have to think of your partner as integral to the business,” Robinson says.

Profits and incentives. To prevent egos and emotions from getting involved when it comes time to discuss money, Robinson suggests bringing in an outside expert. “Compensation experts are aware of the best practices,” Robinson says. “They know how to deal with financial decisions.” This professional can help you develop a unique model that’ll share your revenues and expand your company in a way that works for you.

Legal details. If you determine that a legal partnership is the smartest move for your company, you will need to draw up a Business Partnership Agreement. To locate a business lawyer in your area to help with the agreement, visit the FindLaw Small Business Center.

“People invariably forget what they agree to, so it’s essential that you have everything in writing,” Robinson says. According to the Small Business Administration, this agreement should address how decisions will be made, how profits will be shared, how disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out and what steps will be taken to dissolve the partnership when needed. For additional downloadable legal forms and contracts that may be helpful to your partnership, visit AllBusiness.com.

If after reviewing everything that goes into forming a partnership you decide it’s not for you, don’t rule out teamwork altogether. Consider joining an organization such as your local Chamber of Commerce, where you’ll have networking opportunities with other business owners in your area. Find contact information through the Chamber of Commerce Directory.

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