Accounting and Bookkeeping Articles

The Pros and Cons of Partnerships

Whether you’re considering starting a business with a partner or whether you’re thinking of adding a partner to your current business, it’s good to weigh all the pros and cons before making a final decision.

Cons

Sometimes you can get so excited about a new business venture that you forget to look at the risks. Obviously, you must choose a partner you know well, who shares your values, goals, and business philosophy. Here are some risks to consider when deciding whether or not to enter a partnership.

Your partner’s poor judgment becomes your poor judgment
You and the business suffer if your partner exercises poor judgment.

Friendship-fallout
As John D. Rockefeller once said, “A friendship founded on business is a good deal better than a business founded on friendship.” A falling-out could make it difficult for partners to work together and maintain business profitability.

Shared liability
If your business incurs a significant amount of debt and your partner becomes insolvent or skips town, that debt becomes your responsibility.

Shared profits
Likewise, all the money that comes into the business needs to be divvied out between the partners.

Difficult to disintegrate
Unless you have a buy-sell agreement before taking on a partner, it can be difficult to dissolve a partnership agreeably in the case of a falling out or a partner’s death or incapacitation.

Loss of autonomy
With a business partner to consult on all major decisions and with whom you must share recognition, you may feel a loss of autonomy and independence.

Pros

If you’re considering a partnership, you are probably already familiar with the following benefit:

Increased earning potential
With two accountants bringing in clients there’s the potential to increase the visibility of your business as well as its bottom line.

Shared financial responsibility
Often the financial barriers in starting a business can be enough to discourage the single accountant. But with a partner that financial burden can be shared.

Shared responsibility
When you have a partner you’re no longer bound to operate the office by yourself. Potentially this could give you the opportunity to enjoy a more flexible work schedule.

Potential to diversify services and skills
You can increase the appeal of your business by adding a partner with diverse skills or a special focus.

Melding of two or more minds
You know what they say, two heads are better than one. When in a partnership you have someone with whom you can brainstorm, make decisions, and approach difficulties.

Highly motivated coworker
In a partnership you suddenly have a coworker who is highly motivated to succeed. This coworker can share the workload and help you better manage the business.

Obviously there are significant pros and cons to consider when entering a partnership. Once you’ve studied them all you can make an informed choice that will help you move forward in a powerful business venture.