If you run or are looking to run a small business, you may be thinking about a business partnership.
But what exactly is a business partnership… essentially, it’s a structure that enables you and a minimum of one other person to hold joint ownership of the business. After all, two heads are better than one, right?
Well, before you make the decision about whether a business partnership is right for you, we recommend that you take the time to consider the pros and cons. Luckily for you, we’ve done exactly that!
So, what are the advantages and disadvantages of having a business partner we hear you ask?
Before we begin, lets first identify the three types of partnerships:
Each type of partnership indeed has specific pros and cons, but let's not overcomplicate things here. There are pros and cons that can be applied to all of them! So let’s get stuck in and take a look at the advantages of having a business partner:
As a business owner, you probably spend much of your day juggling tasks. By bringing in a business partner, you’ll be able to share the tasks and complete them faster - freeing up time to tackle more. Hooray!
Maybe a business partner will bring additional knowledge and skills to your business. You may have a hefty amount of experience on a particular product or service, but perhaps a business partner will have more insight into business management?
By forming the right partnership, you could direct your business onto a path of success!
When starting a business, the bills can run up pretty quickly. Do you have costly overheads? Maybe expenses associated with inventory, equipment or event space?
A partner will ease the financial burden by allowing you to split these costs. As a result of additional financial contributions, you may even be able to afford more things up front - avoiding a build-up of debt, allowing for better flexibility and more potential for growth.
For further support, take a look at our online accounting service. Its efficiency and cost-effectiveness allows you to invest your time and money into the most important areas of your business.
Now let’s take a look at the disadvantages of having a business partner…
In a partnership, you’ll be unable to make decisions by yourself, leaving room for potential conflict. You and your partners will likely have disagreements along the road.
In the unfortunate event that you can no longer work together, you’ll hopefully have drawn up a partnership exit strategy. This will involve the redistribution of profits, losses, and responsibilities. Not ideal!
As a business owner, you know the benefits of gaining profits. But when you have a partnership, these profits will need to be split between partners.
Unlike a limited company, it’s important to understand that a partnership is not a separate legal entity from you and your business partner/partners. Each partner is both legally and financially liable for the business. So, if your business is unable to pay back debts, debt collectors may come after your personal money.
Being taxed individually does come with benefits, but there are also cons to be aware of. In general, business taxes have lower rates than individual taxes. As the taxes are passed through to you and your business partner(s), you may end up paying more than if you paid business tax. But don’t get too bogged down with the stress of tax management. By using an accountant, you can make sure that your financial affairs are in shipshape. Take a look at our monthly packages for more information.
So, there you have it, you have reviewed the pros and cons of having a business partner. But, do you have an efficient way to record your transactions? Keep track of your business’s finances with us at Mazuma - we’d be more than happy to help. Get a quote today!