The right business partner can completely transform your business. They can open up new doors and bring your business to a whole new level. For as much as the right partner can help the wrong partner can cause months of misery. Because of this getting into a partnership is a decision that shouldn’t be taken lightly. Not only do you need to know everything about how partner operates you need to know what they bring to the table. You also have to understand the benefits and if there is anything you have to give up. At first glance a partnership may seem like a no brainer but there is often more than meets the eye. Here are some pros and cons to help you determine if a partnership is right for you.
PROS:
- Increased Access To Deals. Before you enter into a partnership you need to understand the impact on your business. You need to ask yourself what you are gaining by joining forces with someone. At the end of the day you should see a tangible impact on your bottom line. Not only should your revenues increase but you should see the number of deals rise as well. With this there will be increased opportunities to grow your business and build your network. A well-positioned partner should have a direct impact the strength of your business.
- Increased Financial Backing. The best partners compensate for areas where you are weak. If your partner is too much like you there may not be any real need to join forces. A good partner will typically increase the amount of working capital you have available. With this you can help market your business, find new deals and increase your local presence. With the financial backing of a solid financial partner you do much of the things you may have been thinking about doing for some time.
- Second Opinion. Going it alone in the real estate world can be difficult at times. One of the benefits of having a partner is the ability to bounce ideas and deals off of. Instead of making impulsive decisions you can put your heads together and figure out the best solution. There are times in almost every investor’s career where they make a decision the regret. This isn’t guaranteed to happen with a partner but the chances are greatly reduced.
CONS:
- Conflicts: Before you get into a partnership you need to know you are working with the right partner. A few preliminary meetings should not be enough to make a full commitment. There are too many examples of partnerships that start off strong but don’t have enough in common to sustain. By getting into a partnership you don’t want or understand you open the door of months of petty arguments, or worse. Some of these conflicts can impact your reputation and make investing much more difficult moving forward.
- Percentage Splits. As an individual investor you make 100% of whatever deals you generate. In a partnership you make whatever split you agree to. In a perfect world a partnership will generate higher revenues but this isn’t always there case. In poorly run or unorganized partnerships you may end up working longer and harder for a smaller slice of the pie. You may also end up tackling areas of the business you are not comfortable with. It is important that you don’t run from talking about splits and how profits will be broken up. This is typically the most common cause of disagreement between partners.
- Power. If you are an investor with a clear vision and a firm personality a partnership may not be for you. By bringing a partner in the mix you immediately lose full control over the path your business takes. You are forced to relinquish it and change the way you do business. Not every investor is cut out to work with a partner. There are times when you need to do things you don’t want to do. You may have to invest in an area or property type that you are opposed to but you know your partner is high on. If it ends up not working you will be resentful and eventually lose faith in the partnership.
One of the keys to a strong partnership is getting as much as you can on the table before you get too far. You need to discuss work allocation, profit splits, time commitment and much more. There should be no doubt as to the direction of your business. You should have a method for dealing with conflicts and breaking any disagreements. If you think you will get along with your partner at all times you will be in for a surprise. You don’t want a partner that thinks the same way you do. It is ok if you argue from time to time and engage in debate. What you do want is distrust and thinking you are getting the short end of the stick.
You should also talk about how the partnership will end. Are you going to keep the arrangement for as long as possible or on a deal to deal basis? With the right partner you will do things with your business you never thought were possible. The wrong partner forces your business to take a step or two back which may be too difficult to recover from. Always take the time to think about if a partner really makes sense for you.
