IT’S ALL TO DO WITH PEOPLE - CHOOSE YOUR PARTNERS CAREFULLY
Although it is absolutely necessary to have enough money to run a business, it is people who can make or break a business
It cannot be over emphasized that you must select your partners carefully - but you often do not realise their limitations until it is too late. Unless you are happy with your partner - start with employees. However, you may have convinced yourself that you cannot go it alone, because of your mental outlook and that you feel more comfortable with partners, especially if they add value and money and take some of the risk.
The fact remains that, if they inject funds, you now have to share control of the business, which includes limiting your profits, but also reducing your risks. Always try to keep control - 50% plus.
Factors in favour of bringing in partners would include:
* You can bounce ideas off the partner, who can assist you in making decisions.
* He/she could bring in new ideas and suggest ways in which the business can be improved.
* As stated, he/she can take the pressure off you with a financial injection.
Problem areas, however, are:
* Is the partner in it for the long term, or only for the short term, to make his/her money and then walk away?
* Is his/her vision in line with yours?
* Does he/she have the money? - be sure before you take him/her on.
* Is he/she prepared to get actively involved in the business and not just be a sleeping partner?
* Does his/her skills, knowledge and experience complement yours?
* Can he/she bring in contracts, which benefit the business?
* Can you work with him/her? Is he/she overbearing, arrogant etc. If you cannot work with him/her then don’t. There are some big egos out there.
* Some partners are more actively involved in other activities - like playing golf.
* Selling or making deals without your consent.
* Worse - even stealing from the business.
* Nothing was put in writing when the partner was taken on board – now it is his/her word against yours.
* You had no other alternative than to take a partner - because you could not raise finances from the bank etc. – dangerous.
I heard of a case recently when an owner was very busy, so he took on 3 partners, giving them 25% each of the business (for nothing) and keeping 25% for himself. He believed that they could enhance his business greatly because of their political and other contacts. Unfortunately this was not the case; they rarely came into the office and did not bring in business, but took big salaries. The owner in frustration decided to sell the business for R1m.
The 3 partners insisted on their R250,000 each - for their 25% stake. The owner had signed a shareholders agreement and after seeking legal advice, he realised that he had to pay. I managed to negotiate a deal on his behalf.
Whereby they received R100, 000 each. “Let the signer beware”.
Many partnerships fold by the latest after 2 years - I wonder why?
Information provided by Bob Power, Power Corporate Consultants
Before we get to find out how a silent partnership works, it is vital to find out what exactly a partnership means.
A partnership is a type of business entity in which partners share with each other the profits or losses of business undertaking in which all have invested.
The liability of the partners are totally a matter of their own choice and will which are discussed before entering the contract, and all the terms and conditions of the financial and legal liability have been discussed and documented legally.
If you want a definition in legal jargon, "a partnership is a nominate contract between individuals who, in a spirit of cooperation, agree to carry on an enterprise; contribute to it by combining property, knowledge or activities; and share its profit".
How does a silent partnership work?
Now that we are clear about what a partnership is, we can move on to find out what a silent partnership means, and how it works.
Also known as a sleeping partner, a silent partner is a business partner who shares the profits and losses of the business, but who is uninvolved in its management, and/or whose association with the business is not publicly known.
Usually a silent partner is a person who provides capital investment and shares liability for the company’s performance. Generally people who do not wish to get into the managerial issues and are looking for investment alone tend to be the silent partners. They participate in any tax and cash flow benefits that the company gets.
A silent partnership is just like a regular business partnership with a few exceptions in case of the duties of the silent partner.
It is extremely crucial for the people entering the partnership agreement to discuss and legalize the terms and conditions of their partnership beforehand in order to avoid future hassles and complications.