According to our 2022 Startup Report, 43% of small business owners in the UK cite the ability to be in control as one of their top reasons for starting up. While having complete control over decisions can be a great perk of running a business solo, there’s also merit to co-founding your business with a partner.
According to the UK government, a partnership is the simplest way for two or more people to run a business together, so it would seem the most logical way to go if you’re looking for some extra support when getting started.
There can be a lot of benefits to having people by your side when starting up, but partners can also lead to unique challenges that solo entrepreneurs don’t have.
We’ll share some top tips for having a successful partnership when starting up and share a few insights from our 2022 Startup Angel Winners, Team Repair, which has five co-founders working together to develop essential STEM skills in more young people.
Types of partnerships
If you’re looking to take on a partner as you start your business, it’s important to understand that there are a few different partnership models for you to choose from. Each of these has their own rules and responsibilities with HMRC, so make sure you understand them before deciding on a partnership model.
General partnership
In this model, both partners will have equal liability and decision-making capability. Every party in the general partnership has equal responsibility for debts and lawsuits that the business may incur but equally, they all have the right to make binding decisions for the business. The UK Government has guidance on how to set up a general partnership here.
Limited partnership
In this arrangement, there is one general partner who manages the business and then one or more individuals who are limited partners. A limited partner typically contributes money to help set up the business but cannot manage the business or remove that original contribution. They may be liable for some debts but only up to the amount they have contributed. Find out more on how to set up and run a limited partnership on the UK Government website.
Limited liability partnership
A limited liability partnership is similar to a limited partnership but tends to have more general partners. As such a partnership agreement is particularly helpful when using this arrangement and should cover: how profits are shared among members, who needs to agree decisions, division of responsibilities and how members can join or leave the LLP. Learn more about limited liability partnerships and the responsibilities associated with them.
Advantages having a business partner
A problem shared is a problem halved. There are distinct benefits to having a business partner to share the challenges of being a startup owner with. Let’s explore a few of the best parts of having a business partner:
Workload benefits
Sharing a business means sharing the workload. As a small business owner you’ll get pulled in many different directions and need to take care of many different tasks which aren’t related to your core product or service. In fact, 27% of small business owners in the UK say having to do their own admin is one of their biggest challenges.
Anais Engelmann, the Chief Creative Officer of Team Repair said: “Up until now it was a time-balancing act. It’s helpful that, with the Startup Angel funding, one team member can now go full time and a few others can be part time.”
Having so many people to share the workload between has allowed them to keep the business moving forward while pursuing other professional activities as well.
Financial advantage
Having more than one founder rather than one can give more credibility to your business and significantly increase your likelihood of raising investment as you now have multiple networks to tap into. Connecting with a broader network can help you find more opportunities for funding or making useful connections. If you’re using some of your own money to fund your business, having more partners can also mean more money available as there’s more people putting forward initial funds.
Shared pool of skills
A co-founder that compliments your skills – can make for a powerful start to your business. Anais spoke strongly about the value of having a good team: “it’s so important that we have all those different hats that we can wear within the business. When you’re first building up a team, I think that’s really helpful. Going forward if I were to ever start another business, I would want to match the diversity of skills that we have here.”
Having such a broad set of skills can also lead to different viewpoints that help find a solution you wouldn’t have thought of on your own. As the saying goes: often, two heads are better than one.
A built-in confidant
According to our 2022 SME Wellbeing report, 48% of small business owners in the UK find it hard to know who they can talk to about business concerns and worries and 58% admitted to feeling lonely at work now and then. Having a business partner, or partners, means that there’s a set person to go to for advice or to discuss business concerns with. It can make the stress of being a start up owner less isolating when you’ve got someone to talk things through with.
Challenges of having a business partner
Not all aspects of having a business partner are rosy, though. There are definitely some potential challenges that you should be aware of before taking on a business partner. Let’s look at a few of the challenges you may encounter with a business partner:
Risk, debt & liabilities
General partners will be at risk for all debts, liabilities, and court judgements of the business – not just for their divisible share but for all the debts of the business as a whole. Limited partners will only be liable for their share of the business. Meanwhile with limited liability companies, ay debts incurred by the business belong solely to the business. As such, there is a greater financial risk in certain types of partnerships that should be considered.
Disagreements
Eventually, there’s bound to be a business decision that you and your business partner don’t align on. Sometimes, this can lead to a bit of friction between partners and settling a dispute fairly can be quite difficult. In order to avoid this, its important to have a clear set of roles and responsibilities for each partner so that it is clear who gets the final say on certain decisions. In a general partnership, each partner is liable for the actions of other partners, so it’s important that there be a system of checks and balances that can help to prevent decisions that lead to illegal, fraudulent, or otherwise unwanted decisions being made on your behalf.
Exit and entry of partners
When a partner makes the decision to leave, it may change the value of the company and the way partner shares are distributed among remaining partners. This can be quite a time-consuming process if it is happening a lot. Similarly, if a new partner enters the business, then the distribution of partner shares will have to be adjusted and the values reassessed to reflect what they bring to the business.
Slower decision making
It may take time to get all the partners together to discuss a decision and negotiate how it should e handled. When you work alone, you can make decisions faster as no one else needs to be consulted, but in a partnership, you should be checking in with the others who are responsible for the consequences of any business decisions. This can slow things down and create longer lead times for pursuing new ventures.
How to find a business partner
If you are looking for a business partner, consider your own network first and see if anyone in your inner circle is interested in and has the skills to go into business with you.
If you’d like to avoid working with friends or families due to the complexities of balancing both a personal and professional relationship, that is completely understandable. For finding potential business partners outside of your immediate network try the following:
- Attend industry events and connect with people there – check places like your local chamber of commerce or co-working spaces
- Utilise business networking sites such as LinkedIn or startup communities on reddit, Facebook and other social networking sites
- Join a relevant professional or trade body and see if they have an opportunities to connect with people or ways to connect with other business owners
If you’re on the search for a business partner, it’s also important to consider what your ideal business partner would look like. As you speak to people and try to get a gauge for their potential as a business partner, there’s a few questions you may want to ask yourself:
- Do our over-arching values match?
- Will we have the same levels of motivation and work ethic?
- Do their skills differ from mine? Will they help fill my knowledge gaps?
- Do you consider this person to be trustworthy? Do they show integrity in their business practices?
- Do their ways of communicating and running complement yours? Do you think you’ll work well together?
- When they disagree with or want to challenge your ideas, do they do so in a respectful way?
- Do they want the same things out of this partnership and business venture as you do?
If you think their business goals align with yours, the last step is to check out a bit more about their background. While hopefully no one is coming to you with less than stellar credentials, a little check into their professional reputation and general business background is just part of doing your due diligence.
Through a background check, you can not only ensure there’s no red flags that might prevent you from working with them, but it may also highlight strengths that you want to leverage from this professional relationship.
Starting off on the right foot with a business partner
If you think you’ve found the right partner, it’s important to start off on the right foot by having some tough conversations up front. Here’s a few things you might want to chat about with a potential business partner:
Equity and financing
If you’re hoping to attract venture capitalists or angel investors for funding, they’ll usually want a part of your business in exchange for their financial and professional approach. It’s important you discuss how much equity you’re willing to release to funders and how much you want to keep for yourselves as founders.
For Team Repair, they’ve looked exclusively for funding routes that don’t require equity: “We have five co-founders of the business and we each own 20% of it, so we’re quite keen to avoid investor funding because that will dilute our equity. Because of that, we’ve been applying for grants and competitions” says Patrick McGuckian, the Chief Operations Officer.
Have a system for settling disagreements
Even the best teams will disagree at times. If there’s just two of you acting as partners, it can be difficult to break up a stalemate as you each have an equal say. It’s worth considering how a tie-break will work if you’re struggling to come to an agreement and there’s a looming deadline that you need to decide by.
For Team Repair, they’ve been lucky to not have any major disagreements yet: “I can only think of one time when the team was completely split on something, and it was whether we should use the Google suite or Microsoft” said Patrick, “and because there’s five of us it just came down to 3 v 2 so the decision was made.”
Having an odd number and putting it to a vote worked great for Team Repair as there was a clear majority. Consider early on how conflict will be resolved if you can’t reach a majority vote on decisions.
Develop a joint vision and goals
Make sure you’re on the same page for the direction of the company by having a goal setting session together. You should also set metrics which will help you track how successful you’ve been in meeting them. Creating a 5-year plan or other forward-thinking vision together is another way to make sure you’re both working towards the same thing.
Clearly define roles and expectations
Since one of the main advantages of having a partner is being able to share the workload, it’s worth clarifying how you will divide and conquer all the tasks needing to be done. Having specific roles and responsibilities will avoid supplicating efforts and will hopefully lead to less conflict.
Build trust and respect
While there’s no specific activity that can quickly build trust or develop mutual respect, it’s important that you always be working towards this. A healthy business relationship can only happen when you know that you can trust each other and respect each other’s skills.
For Team Repair, having that trust in each other’s skills and decision-making abilities has been paramount. Anais says: “because we all have specific roles and we’re all aligned on the vision of where we want to go, we have a lot of trust in each other’s abilities. We all know where our strengths are, so if someone says, ‘I think this is the right decision’ we’ll trust their judgement.”
Ending a business partnership
It’s important that there also be an exit strategy for partners to leave the business. It’s natural that people may want to move on, or it may be a disagreement that causes someone to step back from the business. Whether it’s amicable or not, having a clear exit strategy in place before someone wants to leave will help keep things neat.
Details on how an exit will work should be included in the initial partnership agreement that you enter into when forming the partnership. As the business grows, it may be worth reviewing this exit strategy and term occasionally to make sure they reflect the current success.
All links are checked and valid at time of publishing, 3 March 2023.
