5 Tips for a Having a Successful Retail Business Partner
Many of those who dream of buying their own retail business often lack all the expertise and financial resources necessary to do soon their own. In these situations, pairing up with a partner can be the perfect way to bring together the money and skills required to purchase and operate a retail store.
Still, for every successful retail partnership, there are numerous others that fail because one or more of the buyers were not prepared to handle the unique challenges of a partnership relationship. Although many of the basic principles of buying a business with a partner are the same as that of a sole proprietor, it is the nuances of a partnership that can significantly affect the success or failure of your business. Fortunately, if prospective partners follow these six tips, they can increase the chances their new endeavor is a success.
- Select the right partner. Nothing is more important in the partnership process than selecting the right partner. Many prospective retail owners turn to family and friends as their first option. Although they may be partnership material, keep in mind that personal relationships do not automatically transfer into successful business relationships. Instead, evaluate partners based their skills and resources. A strong candidate will be dependable and bring unique set of talents, experiences, and perspectives to the store.
- Establish your goals. It’s important that you and your partner agree on the type of retail store you want to acquire and your ultimate ownership goals. For example, do you see the store as a long or short-term venture? What different growth options would you like to pursue? Do you want to focus on your single location, expand to multiple or grow by franchising? Having different ownership and growth goals will set you up for disagreements and potentially disaster later on.
- Clarify each partner’s ownership stakes. Partners should always clarify one another’s ownership stakes, financial requirements and voting stakes. In today’s economy especially, it is very common for people to turn to partnerships out of financial necessity. For example, one partner may have the vision, skills and dream to open the store, while the other has the financial resources to buy and invest in the store. In cases where the partners are not making equal financial contributions or one is a “silent partner,” clarifying these ownership stakes becomes especially crucial, as disagreements down the way can ruin the business or turn into legal battles.
- Determine partner roles. As mentioned, it’s best if both partners can bring different skills and expertise to the business. Do this by identifying each other’s strengths and what areas they’re best suited to manage. For example, perhaps one of you has a knack for marketing the store, while the other has a better handle on the store’s finances or back office operations. Either way, it’s best to avoid too much skill overlap as it is inefficient and can lead to arguments on how to best manage tasks.
- Create a solid partnership agreement. After you discussed the above issues, meet with your broker and attorney to develop a partnership agreement. No matter how strong you think your partner relationship is it is still best to have a written contract. A strong partnership agreement lists upfront financial contributions, ownership stakes, roles and decision-making and other potential issues you may see.
Including a buy-sell agreement will also result in a smoother and more financially successful exit. The buy-sell agreement should identify a valuation process that is fair for both parties, and that figure should be consistently updated to reflect the current value. Small and medium-sized businesses should also include a clause that addresses how the company will operate and manage should an owner decide to leave the business or step away from daily operations. Lastly, the buy-sell agreement should include how an ownership buyout would be funded. If this isn’t addressed beforehand, it may be hard for the business to continue without the interference of external interests.
Don’t jeopardize your business before it even starts. Instead, set your retail venture up for success and prevent any major partnership disputes from occurring by agreeing on these issues right from the outset, and get them in writing so that disagreements down the road can be resolved more easily.
Contributed by Bob House, general manager for BizBuySell.com and BizQuest.com – the Internet’s largest and most heavily trafficked business-for-sale marketplaces. Together, BizBuySell and BizQuest offer an inventory of tens of thousands of small businesses for sale that refreshes continually and receives more than 2 million monthly visits from business owners and aspiring entrepreneurs. Bob is a recognized spokesman on small business transition issues, having contributed to numerous publications on the topics of small business acquisition, small business valuation, and the business for sale market.