Most small businesses in Canada are sole proprietorships. But if you’re ready to take on someone else, here’s are a few best practices for forming a business partnership.

 

Step 1: Ensure Your Business Goals Align with Those of Your Partner-to-Be

All parties in a business partnership must have the same goals and vision for the alliance to last. For instance, if your goal is to build a famous retail brand in different parts of Ontario while your partner-to-be only cares about a decent living, the partnership is doomed to fail.
You should partner with like-minded entrepreneurs to establish a resilient alliance that can withstand future uncertainties. For this reason, define your goals and compare them with that of your potential partners. Then, work with those who share your visions or have a complementary skill set for a successful partnership.
While there are no mandatory legal formalities when creating a partnership, it’s best to draft an agreement in writing signed by all partners.
A partnership agreement is crucial because it is legally binding and can protect your interests in future disagreements.

Step 2: Define the Financial Responsibility of Each Partner

You need to decide how much money each party will invest and the risks they’ll bear to help you address all the possible financial issues that may arise.
For instance, you’ll know the way forward when partner A contributes more startup capital than B. In such a case, the party with the least financial resources can even up their contribution with sweat equity, where you assign them more business responsibilities in the partnership.
Additionally, defining financial responsibilities in a partnership helps you understand and share the risks involved. For example, debt financing may be the initial or additional capital to fund the partnership. In such events, all parties should understand their share of the debt to avoid disagreements and inconveniences in the future.

Step 3: Divide Business Responsibilities Between (or Among) the Partners

Business responsibilities are the most common causes of partners stepping on each other’s toes. For this reason, you need to sort out business roles before you start operating as partners.
What will be the role of each partner? How will each partner carry out their roles daily? Who’s responsible for making crucial decisions?
You also need to divide responsibilities based on your strengths and skills. For example, if one partner is strong in finance and marketing, and another partner is good in leadership and sales, split roles accordingly.

Partner With a Professional Accountant

If you’re looking for accounting services like bookkeeping, tax planning, and CRA audits, we’ve got the experience to take your small business to the next level. We’ve worked with plenty of start-ups helping them thrive in the industry.
Contact us today for more information.