How to choose the right partnership model to grow both businesses
For many businesses, entering into a partnership is an attractive way to grow the business and increase its reach beyond what would have been possible alone. For business partnerships to work, both parties must be equally committed, and they must share compatible cultures and goals. Choosing the right type of partnership can be tricky and depends on what both parties want to achieve from the relationship, according to AUB Group.
Mark Searles, chief executive officer and managing director, AUB Group, said, “Choosing the right model depends on any number of factors from financial obligations to personal preferences. The model that works in each instance will depend on factors like how each party wants to manage decision-making, how much capital each party will contribute, and whether the parties are likely to want to exit the agreement.”
There are four basic partnership models:
1. Equal. An equal, general partnership is where every partner, regardless of how many there are, is equally responsible for the business, including its operations, its profits, and its debt.
2. Limited. Where one partner invests less than another, the result is an unequal partnership, or one where that partner has only limited obligations. This is usually calculated according to the amount they’ve invested. It can be a low-risk way for one party to explore what it’s like to work with the other.
3. Silent. Sometimes, an investor is willing to provide capital and receive dividends without having any say in how the business is run. This is often referred to as a silent partner.
4. Equity. In this model, each party retains some equity or ownership of the business and its earnings. The equity doesn’t have to be equal, since each partner’s equity is calculated based on their contribution to the business. This contribution can be in the form of capital or services, which is often known as sweat equity.
Before signing any type of partnership agreement, AUB Group recommends both parties do exhaustive due diligence to learn as much as possible about their prospective partners before inking the deal. This prevents uncomfortable or expensive situations in which the partnership needs to be dissolved.
Based on 30 years of partnering, AUB Group has identified five key traits for a successful partnership:
1. Shared vision, goals, and expectations.
2. Trust between all parties.
3. A similar or complimentary culture.
4. Complementary strengths that let each party support the other.
5. Adaptability and flexibility to embrace the inevitable changes in business.
Mark Searles said, “AUB Group chose an owner-driven partnership model because that’s what works best for our partners and their customers. This equity-based partnership model means both parties have skin in the game with 50-50 ownership and responsibilities. AUB Group is a proactive partner that focuses on driving growth. Owners retain control over daily operations while they leverage the collective resources of the Group, including access to infrastructure and operational assistance, technology support, marketing, human resources, and other back-office services. The economies of scale offered by this arrangement let AUB Group’s partners access discounts and preferential deals with insurers.”