I have been asked recently by some clients and other business owners … “I am thinking of getting a business partner(s), so how much should I give away to them and what is the model way of doing this?” The answer to this question is … there is no one simple resolution. Really … there isn’t.
What is in it for everyone?
Although there may be similarities, every equity restructuring, business partnership arrangement, and profit-sharing deal is unique to the parties that are entering into the transaction. Structuring the deal is entirely up to you but ask yourself … “what are you prepared to give up, to gain out of it”. Carefully consider what the potential business partner is going to bring to the venture and what value will they add to the business. You may know the potential partner quite well and have a good assessment of what they provide. If you don’t know them well or at all, there is only a lot of talk and speculation at this juncture.
Only you can make a conclusion on this assessment, but if you need guidance reach out to an Accountant, Lawyer or Trusted party to discuss and advise you. My strong suggestion here is that you need to be having ongoing and quite frank conversations with the other party to be clear and concise and leave no doubt as to what expectations are. Over my career, I have seen so many business relationships (and consequently personal relationships) fail because there was not a clear understanding of expectations from the outset. Have regular meetings along the journey to assess progress and required milestones.
Once you have settled on your arrangements, clearly document it and the requirements of a Shareholders’ Agreement. Consider building in equity adjustments for the business partner (and both parties) depending on under or over achievement; incentives and disincentives clarify the delivery.
Are you the one?
Business partners can enhance a business tremendously by bringing in expertise and freeing resources to expand sales and operations. However, sometimes they end like a “badly arranged marriage” – everyone is disappointed. Business partnering can be a good and successful thing, but I also understand sometimes you are forced into it to save a business. Tread carefully and don’t be rushed into it if you do not need to be.
As a colleague of mine once said … 50% of a large pie is more than 100% of a small pie.