9 Issues to Figure Out Before Starting a Joint Venture
March 14, 2019
9 Issues to Figure Out Before Starting a Joint Venture
As excited as you and your partner might be to get the ball rolling on your joint venture, you need to take a minute to breathe and plan things out if you haven’t already. Rushing into a project of this magnitude can result in disaster for everyone, financially and otherwise. If you’re unsure where to start, keep reading. The below is by no means an all-encompassing list of what kind of thought needs to be put into a Joint Venture, but you’d be hard-pressed to find a better starting point.
Learn Everything You Can About Your Prospective Partner
Before forming a Joint Venture, there is nothing more important than knowing everything that you can about your partner. No matter how good of friends you are, no matter how close you might believe the two of you to be, you must dig deeper. Even the best of friends can find themselves at each other’s throats when money is on the line. If you’ve known your prospective partner for a while, then it can be easy to assume that the two of you are in complete alignment. But this is something that is too important for assumptions. Ensure that your values, morals, and ideals match up, as well as your respective visions for the Joint Venture.
There are things to investigate beyond the personal level, too. Does your partner have any experience with Joint Ventures, or is this their first foray into that world? If they have in fact engaged in Joint Ventures before, how successful were they? If you can, speak with some of their past partners for an outside opinion. You aren’t doing this just to protect your own investments, but your reputation as an entrepreneur and business owner as well.
Know Exactly How Responsibilities Are to Be Divided
Clearly defined roles are essential to a successful Joint Venture. Be as specific as you possibly can, here. Again, your Joint Venture is too important for you to count on assumptions. Just because you think a given task or responsibility falls within your partner’s scope doesn’t mean that your partner will agree. Draft up a comprehensive of all the duties, responsibilities, and tasks to be divided between the partners. If you run into a job that neither partner is willing or able to perform, don’t panic – this is what independent contractors are here for. Management responsibilities, including risk management, should be unambiguous unless. Any confusion here can quickly spiral into a time-consuming blame game without any winners.
Plan for the Worst
There are enough sayings and clichés about the importance of preparedness that you don’t need us to recite them to you. Still, we wouldn’t be doing our due diligence if we didn’t hammer home the significance of planning for unexpected and worst-case scenarios. Do this before signing any documents. Every potential, no matter how unlikely it might seem at the outset, should still be considered. Topics to go over include but are by no means limited to:
How to respond to shifts in market conditions and economic downturns
How to adapt to the loss of key customers
How to be compliant with new regulations that might arise
How to respond to shortages of employees or equipment
Write Up a Strong Joint Venture Agreement
The benefits of a well-written Joint Venture Agreement cannot be understated. It is, without a doubt, one of the most significant and versatile documents that you and your partner will have drafted in your time together. This Agreement should be as detailed as possible and should include everything from how the Venture is to be operated to how you plan to resolve any conflicts that might arise. Any worthwhile Joint Venture Agreement will also dictate how profits and losses are to be split, the objectives of the venture, as well as the liabilities of and indemnities to the partners. However, this is just scratching the surface. Be comprehensive and leave nothing out. It pays, in this case, to take the time and double-check that all the bases have been covered.
Understand How Each of You Measures Success
Your joint venture cannot succeed without some basis for measuring progress. While it’s normal for partners to have somewhat different visions for what the venture could ultimately become, the two of you still need to agree on how to track and evaluate each other’s performance. Creating benchmarks based on your business plan’s projections can help give each of you a better idea of what to expect from one another. You should also plan for what changes to make to your arrangement if either party fails to meet those expectations.
Communicate Honestly, Openly, and on a Regular Basis
As with any other partnership, establishing an open line of communication is essential to running a profitable Joint Venture. Whether it’s because of the limitations of geography or tight schedules, it isn’t uncommon for partners in a Joint Venture to hold fewer meetings than those in other business relationships. However, you must make every effort to meet as often as possible, even if those meetings are restricted to teleconferencing or a telecommunications app like Skype. Honesty and forwardness are key here. Be open and respectful in airing any grievances you might have with the other party before they can grow into full-on disputes. Regular meetings are also a good opportunity to review recent performance.
Stay on Top of Your Recordkeeping
Well-kept records act as a safety net for any business project. This is especially true for Joint Ventures. Should a key employee exit unexpectedly, the work and progress they made could be lost along with them if there aren’t any records left behind. Records are critical to maintaining continuity and momentum. Appoint trustworthy, detail-oriented employees to oversee financial, operational, legal, and other important records. Know where these records are kept, know who has access to them, and make back-ups if doing so won’t pose a security risk or otherwise violate the law. Keep them safe, protected, and ensure that you have everything you need to stay compliant not only in the jurisdiction of the Joint Venture, but in the jurisdictions of each party, too.
Choose Experienced Advisors
As brilliant as you and your partner might be, the two of you are still going to need some guidance along the way. Seek out experts to assist you on tax, legal, accounting, and strategic matters. Not just any professional will do, though – you’ll want them to have experience with joint ventures. It’s for this reason that you might need to look beyond advisors that you have consulted with in the past. Knowledge and insight, not comfort and familiarity, are what makes for a good ally. Even if your past counsel has experience handling joint ventures, you might still want to think about taking on someone new in order to avoid any potential conflicts of interest.
Plan for the Worst of the Worst
It’s not a fun thing to think or talk about, but partners in a joint venture must consider what to do if the partnership or venture fails, forcing them to part ways. Comparing this to a divorce might be dramatic, but it would not be inaccurate. Assets must be split between parties that, for whatever reason, are no longer seeing eye-to-eye. If the Joint Venture Agreement lacks a procedure for handling such separations, then the terms of the “divorce” will have to be negotiated.
Looking to start a business or grow your current business? Contact FL Patel Law today by visiting our website, www.FLPatelLaw.com, or calling 727-279-5037.
Tyler Thompson is a second generation St. Petersburgian with a passion for reading and writing. In 2018 he finally made his way to FL Patel Law PLLC where he has found a home for himself as Project Manager. He is an unapologetic dog person who enjoys spending what free time he has with his friends and family.
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