When launching a business, an entrepreneur faces countless decisions: “How will I raise funds? Where can I find talent? Do I need to outsource?” But before addressing any of these concerns, he or she must make one important choice: whether to enter business as a sole proprietor or form a partnership.
If you’re looking to put in place a small business plan, this decision will affect all other choices you’ll make. So you need to make it as soon as possible. Unfortunately, the choice is not cookie-cutter clear. There is no best option; only one best suited to you. By understanding the advantages and disadvantages of partnerships, you can determine if this is the path for you.
Why form a partnership?
As it tends to be in many business decisions, money is the main motivator in forming partnerships. In starting a business, entrepreneurs are faced with a wealth of expenses and virtually no revenue. To meet these capital demands, many look to a partner. Partnerships increase the capital available as well as the borrowing power of the business.
Partnerships also widen entrepreneur access to other resources including knowledge, skills, and contacts. Say you wish to start a travel agency. You’ve visited the ends of the earth, compiled mounds of research on transportation options, and know how to snag all the best deals. But you don’t know how to package and present these deals in an appealing way. You can’t even create a simple brochure, let alone a website. By partnering with a graphic designer, you wouldn’t have to.
Because they allow each business owner to specialize, partnerships ensure all aspects of the business operate at full potential. They also provide a wider pool of contacts. Small businesses can reach out to twice as many personal contacts when recruiting talents and acquiring new clients.
Then why fly solo?
It’s a Catch-22. What pushes individuals to form partnerships also makes them shudder at the mere thought of one. Partnerships are all about sharing, and while it’s great to share skills, contacts, and expenses, it’s not so great to share profits.
In bringing on a full-fledged partner, you automatically cut your earning potential in half. And in addition to relinquishing this revenue, you also cede a lot of control. With as firm a stake in your company as you, your partner will want just as much say in its operations. This is natural, but it may not feel that way to you. It’s likely that the lure of starting your own business stems, at least partially, from your desire for autonomy, which may feel threatened in a partnership.
How to decide
Do you need a partner or not? Keep your decision this simple. Don’t ask “would it be fun?” but “is it necessary?” Though partnerships offer many great things, if you already have access to them, why forsake half your profits?
If you have the funds, skills, and experience to be successful on your own, don’t hesitate to enter business as a sole proprietor. By hiring employees you’ll still gain access to a diverse set of skills and a broad range of contacts.
If you’re lacking a certain skill or resource, another option is to outsource. Any business, start-up or established, can benefit from hiring an outsourced accountant. Our start-up accounting and CFO services experts can provide with information about this option.