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  • Pittsburgh Investor

Why A Partnership Might NOT Be Best!

Some people are very analytical, while others are very skilled at communicating.  Some people are great with organization, and others are great at creating.  Running a business generally requires all of these skills at once to be successful.  The problem is, most of us have weaknesses in some of these areas.  That is where a potential partnership comes into play!

I want to note some downsides to partnerships as well as some successes that can hopefully save you some headache and tens of thousands of dollars.  I've been involved in many business ventures ranging from financial planning, to real estate, to marketing, to sales.  I've had a partnership of some kind in almost each business.  I learned some valuable lessons along the way.  The first is that in a partnership you run the risk of taking on someone else's liabilities.  If they screw up, it could be you that has to pay the price.  Whether it be from a reputation standpoint, financial standpoint, or loss of opportunity, a partnership is like a marriage.  It's not easily broken, and can become very expensive and emotional if it goes downhill.

You can't just send an email saying you're through.  There is a legal process, and in the rare case you agree on everything, the business is still running and you are liable for that in the process.  This can be extremely stressful trying to keep a business afloat, while dealing with a turmoil of a partnership, and draining tons of money in the process!

The other thing that is happening more and more frequently with the internet, is people aren't what they say they are.  Everyone is rich, successful, and experienced based off their social media.  The problem is when times actually get tough it shows peoples' true colors.  People also tend to over-exaggerate their wins and downplay their losses.  They generally aren't who they say they are, and if you are relying on that expertise, you may have put too much of an investment in someone who can't add much value. The phrase "trust but verify" definitely comes to mind here.

So what are the solutions?  what groundbreaking knowledge has been gained from these experiences?  First off, there's no need to hop into a legal partnership.  You can take time to work on a few projects or clients together to test the waters and get paid out separately.  This is a great way to see how you work with people, and watch their performance to see if you really want to build a legal partnership long term with that person.

Also, vet them extensively.  There's nothing wrong with asking people to prove what they are marketing.  Ask for references of past clients, ask to contact their other business partners, show me some proof of funds that show you are capable of withstanding a downturn of the business cashflows.  Taking these extra precautions can be very helpful in avoiding the mistake of getting into business with the wrong people.

Partnerships are great when everyone is on the same page, has strong ethics, and the same motives.  By no means should you not get into business with other people, in fact you will probably need to to expand.  Just some lessons I've learned that have cost me over $40,000 and that my friends is real cost tuition!

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