Partnership business is one of the oldest forms of business. And remains the second most common type of business. That is, after one-man business. The beautiful thing about partnership business is that it reduces the financial, physical and mental stress involved in starting and running a business alone.
In this post, we shall look at 5 key benefits of partnership business. To accomplish this, we shall be looking at the following questions:
• What is partnership business?
• What are the things to consider before going into partnership business?
• What are the benefits of partnership business?
Partnership business is a type of business in which 2 or more persons agree to set up and manage a business outfit with the sole aim of making profit.
Partnership business is usually formed by an association of 2 to 20 persons who by agreement (legal or not) decide to pool their resources (capital) or skill or both together and establish a business enterprise. The people involved in this agreement are called “partners”. And they share profit, losses, and risks of the business.
In a nutshell, for a business enterprise to be referred to as a partnership business, it must posses the following major characteristics:
♦ The business must be owned by more than one person. Usually between 2 to 20 persons.
♦ The capital required to set up the business must be provided by the partners based on legal agreement.
♦ The business must be controlled and managed by the partners based on agreement.
Before going into partnership business, it is important to consider the following points. So as to prevent any future problem that may hamper personal relationship between the partners or hamper the existence and growth of the business.
♦ Do I need a Business Partner: This is the first question you should ask yourself before deciding to go in search of a partner. If you think that you have all it takes to run your business alone, then going into partnership is not necessary. Partnership is good when it offers complementarity in capital, skill, connection and so on. Even at this, if you have the capital and required connection, you may just hire someone with the skill you seek as an employee.
♦ Who do I Need as a Partner: If for some reasons the answer to the first question is “YES”, then the second step is to answer this question. I will provide you with clue on how to answer this question. Firstly, it is very important that you have or establish a certain level of personal relationship with whoever you wish to enter into partnership business with. Also, ensure that there is good communication skills, mutual interest and vision between you and your potential partners. Partnership business may be started with friends, relatives, or strangers. Who ever it is or they may be, ensure that there is understanding between you and your partner(s).
♦ Business Plan: A good business plan is very important in determining the viability of any business. Partnership business inclusive. This business plan would clearly highlight the human, physical and financial requirements of the business. So, that the need and contribution of each partner is based on the plan. It also helps the partners in identifying the target market, the revenue projections as well as the cost projections.
♦ Partnership Agreement: It is accordingly usual for people entering into partnership to express their intention in a partnership agreement known as ” deep of partnership”. This can be in the form of express agreement, by law, or by estoppel. This document is drawn to clarify issues bothering capital contribution, sharing of profit and loss, responsibilities of the partners, admission of new partners, nature of business, objective of business, duration and dissolution of the business and so on.
These issues must be addressed to ensure healthy business and interpersonal relationship between the partners.
Going into Partnership business comes with a lot of benefits. In fact, it is the easiest form of business that augments for the numerous lapses in one-man business. Unlike a sole proprietorship business, partnership business offers the following benefits:
♦ Partnership encourages pulling together of financial resources. This goes to increase the capital base of the business through the partners contributions.
♦ By combining skills, abilities and knowledge, partnership business is better managed than a sole proprietorship. Efficiency in production is also increased. And also better decisions are taken.
♦ Unlike sole proprietorship business that easily collapse on the death of a partner. The death or exit of a partner may not affect the existence of the business. Thus, partnership business offers better chance of continuity than one-man business.
♦ Partnership business also offers investors room for sharing risks and liabilities involved in business among themselves. This reduces individual burden.
♦ Partnership business offers great possibility for expansion through the pooling together of financial resources. And additional capital generated from incoming partners. Also, the connections of the different partners may help in increasing the customer base of the business.
Partnership business do have its limitations like incessant disagreements, slow decision making, and so on. However, with a good partnership agreement, all these problems are likely to be taken care of. This makes partnership business a very reliable form of business.
So, when next you have that wonderful business idea, do not let your limitations stop you from turning the idea into a money spinning reality.
Instead, look for a partner that can compliment your limitations.
Thanks for reading !!!