The Pros & Cons of Having A Business Partner

Forming a business from the ground up is no small task, regardless if you’re doing it alone or with other partners. As an entrepreneur that’s created numerous companies, I’ve learned a lot from my experiences. I’ve built businesses on my own and with many different partners over the years.

As you can probably imagine, the more people that become involved in a business, the more complicated it can be to run. However, there are also pros for having multiple partners for a business. In this post, I’m going to share with you everything I learned from the businesses I’ve created when it comes to business partners.

If you’re considering starting up your own business, here are the pros & cons of having a business partner:

Pros of A Partnership

1. Differing Strengths And Experience

Partners automatically supplement each other’s skills with their own unique backgrounds and expertise. When considering the pros and cons of partnership, this pro can be extremely important as your business will likely benefit from having multiple people with knowledge in different areas. As an entrepreneur, I quickly learned what my strengths were and what my weaknesses were. Being able to fill in partners for my weaknesses helped me focus on my strengths.

2. You Have Less Financial Burden

Starting a business can be expensive especially if you’re funding it yourself. You might have costly overhead expenses for inventory, equipment, retail space, employees, etc. A partner can ease your financial burden. Instead of paying for everything yourself, your partner can split the cost. Due to the partner’s financial contributions, the business might be able to afford more things up front. In addition to that, you might be able to avoid large amounts of debt when starting your business.

3. Simplified Taxes

The biggest advantage of a general partnership is the tax benefit. Businesses structured as partnerships do not pay income tax. Instead, all profits and losses are passed through to the individual partners. The partnership still files a tax return stating the business’s profits and losses, but it does not pay taxes on the income. The partners must also file tax returns that show their individual shares of the company’s profits and losses — although partners are not treated as employees.

4. There Is Less Paperwork

Starting a partnership isn’t difficult. You don’t have to file special paperwork with the federal government. All partners involved must sign a partnership agreement. This agreement will detail the duties and responsibilities of each partner, how decisions will be made, how profits and losses are divided and other basics to keep things in order. Creating and signing this document is simpler than filling out the paperwork for other business structures.

Cons of A Partnership

1. Disagreements

Most people see the biggest con of a partnership being the conflict and disagreements that come about from starting a business with someone else. These conflicts may range in matters of importance, but even the smallest issue can lead to major consequences. If you aren’t comfortable enough in knowing that you can argue and get over things with your business partner, you may need to consider who you choose to work with. Disagreements are one of the worst reasons for a business to fail.

2. Legally Complicated

When starting a business individually, the legalities behind it are a lot simpler. However, a partner changes a lot of that. You now have to draft up agreements to protect both individuals in the entity and create a set of laws that everyone must operate by. While the complications aren’t significantly more, it is something that requires more time, attention and money.

3. You Have To Split Profits

When you run a business by yourself, you have an opportunity to gain all the profits from the business. But when you have a partnership, you have to share the profits. Depending on how many partners you have, your share of the profits can get fairly small.

4. Management Issues

Because partners can make investments from their personal finances and the money invested is then owned by all partners, it’s easy for questions of reimbursement to arise. What if one partner didn’t want the company to take that money and doesn’t want the company to pay it back? The same kinds of issues can arise with purchases for the company or even with decisions on which suppliers or clients to take on. Having all partners equal in power and responsibility can cause problems unless proper guidelines are set out.

Conclusion

There is no right answer when it comes to deciding to start solo or as a team. Hopefully this post helped you get a good understanding of both perspectives. In this post, I shared with you the pros & cons of having a business partner.