Buying a Business With a Partner: The Questions You Need to Answer First Buying a business with a partner can give you more capital, complementary skills, additional experience and someone to share the workload. But it also adds an entirely new layer of risk and complexity to the acquisition process. Watch the full video here: redacted Before you commit money to a deal, you and your prospective partner should be able to answer five important questions: Should this person even be your business partner? Should ownership really be split 50/50? What happens when the business needs more money and only one partner can provide it? How will you divide responsibilities, authority and compensation? What happens if the partnership eventually stops working? These questions should be answered before you buy the business—not after problems arise. 1. Should This Person Even Be Your Partner? Buying a business with another person actually involves three projects at once. You are creating a partnership, searching for and acquiring a business, and designing the future operating relationship between the partners. As David C. Barnett explains, “A business partnership can be even more involved and laborious than a marriage.” That means you should first question why you want a partner at all. Perhaps you need additional money. Could you borrow it instead? Could an investor provide capital without becoming an operating partner? Maybe you want another person because they possess expertise you lack. Could you hire an employee, consultant or coach instead? There are legitimate reasons to have a partner. Someone may bring valuable relationships, reputation, specialized skills or experience. But loneliness, fear of responsibility or simply wanting someone else to share the burden are weak foundations for a partnership. Once you decide a partnership makes sense, look carefully at trust, respect and alignment. Do you both want the same outcome from the business? One partner may want to rapidly grow and sell the company within three years while the other wants to operate a stable, profitable business for 15 years. Neither objective is necessarily wrong, but combining them in one partnership can create predictable conflict. 2. Should You Really Split the Business 50/50? Two partners do not automatically mean two equal ownership positions. As Barnett puts it, “Fifty-fifty does not necessarily equate to a fair deal.” Consider everything each partner is contributing: cash, labour, expertise, relationships, personal guarantees and financial risk. Suppose one person provides most of the acquisition capital while the other brings 15 years of industry experience and agrees to manage the company for $50,000 per year instead of the $75,000 market salary. That $25,000 annual wage concession represents a real economic contribution. Risk matters too. If both partners personally guarantee a business loan, the guarantee may be joint and several. That doesn't necessarily mean each partner is economically exposed to only half the debt. A partner with significant personal assets may have considerably more at risk if the business fails. Ownership, compensation, shareholder loans and other financial arrangements can be structured to recognize these differences rather than automatically dividing everything equally. 3. What Happens When the Business Needs More Money? Sooner or later, many businesses need additional capital. Before entering a partnership, decide what happens when that moment arrives. Imagine two partners each own 50%. The company suddenly needs another $100,000, but only one partner can provide the money. Is the additional $100,000 a shareholder loan? Does that partner receive additional shares? If new shares are issued, does the original 50/50 ownership structure disappear? These decisions become much harder when the business is already experiencing financial stress. Barnett recommends what he calls “planning for the next dollar.” Partners should establish the rules governing future capital requirements before the money is actually required. 4. Who Is Actually in Charge? Ownership and employment are different things. One partner might own half the company but work only five hours per week. Another might spend 50 hours running daily operations. Compensation for that work should not necessarily correspond to ownership percentages. Responsibilities and decision-making authority should also be clearly divided. Otherwise, every decision can become a committee meeting. “If you have to wait, talk to your partner… you actually become less efficient,” Barnett explains. One person might control operations while another handles marketing or finance. Each needs enough authority to make decisions within their area without seeking permission for every routine matter. Even in a 50/50 partnership, someone will normally need to function as president or general manager. At the ownership or board level, both partners can establish strategic direction. Operationally, however, an organization cannot effectively have two people simultaneously acting as the ultimate boss. 5. What Happens When Something Goes Wrong? Partners naturally concentrate on what happens if everything succeeds. Good partnership planning also asks what happens when things fail. What if your partner stops working but still owns their shares? What happens if one partner becomes incapable of performing their assigned management role? What happens if one partner dies, becomes disabled or wants to retire ten years before the other? And what happens when the partners simply can't agree? These issues become even more complicated when the business partners are married. As Barnett says, “A marriage certificate is not an operational guide for a business.” Partners should discuss dispute resolution, departures, buyouts, valuation methods, death, disability and eventual exit while everyone is still friendly. Those decisions should then be documented properly with legal and accounting professionals. A generic boilerplate shareholders agreement may not reflect the economics or realities of your particular business. The objective is not to predict every future problem. It is to establish enough clarity that problems can be handled without destroying the company. Ultimately, buying a business with a partner can work extremely well. But the relationship needs to be designed just as carefully as the acquisition itself. Before committing your money, test the partner, design the economics, define the work, establish the rules and understand how each person eventually gets out. Those conversations may feel uncomfortable before the deal. They will be considerably more uncomfortable after it. Learn more by signing up to our Business Buyer Advantage: Online Training, including the new bonus module at redacted