Taking on Partners in a Franchise Business
The pros and cons of partnering on your franchise opportunity
Author: Jason Rager
Organization: Franchise Analyzer
About the Author:
Jason Rager is the author of: The Franchise Insider's Guide, the most comprehensive franchise resource available, and No Money Down Franchising, the only system developed to help you buy a franchise business for little or no money down. Mr. Rager has over seven years of franchising experience owning six different franchise brands in three industries. He is also Founder and President of Franchise Analyzer a software company that develops software solutions for the franchise industry.
Date Published: 09/06/2012
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From time to time, different soon-to-be franchise business owners have asked me about the pros and cons of taking on a partner when starting a franchise business. Personally, I am all for partnerships for many reasons that I will outline below. However, there are some precautions that you should take if you are considering taking on a business partner because if you fail to realize some of the downside risks early in your partnership, those risks may become serious problems within your business at a later time.
One great benefit of having a partnership is that you can divide the work between yourself and the other owner(s) which makes it much easier to stay on top of everything while launching your new business(just read any of my other posts about starting a franchise business, it is very time consuming but rewarding). Also if someone gets sick or is unable to perform their job functions, then other partners can carry the workload until they get better and return to full performance.
By having a partner to bounce ideas off of and to make decisions with, you will collectively have more strengths than if you were to start the business without a partner. For example if you hate "doing the numbers" but you enjoy working with people and talking with customers, you can handle the operations while your partner handles the financial aspects of the business. Together as a team, you are able to perform both job roles with a greater efficiency than if you were trying to do it all yourself.
Third, by taking on a partner you will immediately expand your network for marketing and your financial resources which can be essential if your business runs into any trouble along the way. Think of how many potential investors you know right now and how many people you would invite to your grand opening. Then simply double the number and that is what a competent business partner could bring to your new company. Similarly, you may be able to take on a larger investment with a partner than you could by yourself.
For each pro, there is also a con for taking on a business partner. The first and most obvious negative becomes apparent only after you have begun operating as a partnership: speed. While you gain many assets by working together, you lose speed when decision making as a team. This can be very hazardous to your business if you don't manage it effectively. Business owners make hundreds of decisions each day and another person will not always be available. If you don't carefully manage and delegate responsibility to each other you will find yourself getting nowhere fast. So you should lay out on paper the roles that each partner will fulfill within the company. Also express what you like doing, it may turn out that what you enjoy, your partner despises and vice versa.
Another downside to having a partner is a conflict of goals. In the beginning you may both have the same goal in mind but over time, goals change and your partner may even begin working against you. For example, if your partner wants to sell the business to put their child through college and you want to continue running the business but you cannot afford to buy it out, then you may find yourself in a predicament. By having an agreement in place early in your partnership you can refer to it to help navigate your partnership through these kinds of challenges to find an agreeable outcome.
Finally, it is not often that I see partnerships where each individual works an equal amount towards growing the business. Rather, it is usually one person devoting much of their time to making the business run while another partner sits back and enjoys the fruits of the other person's labor. To help mitigate this, in conjunction with setting out each person's role, you can set a number of hours that each partner has to devote to the business before the other partner must step in and help in that particular function.
In summation, by planning and drafting a strong framework that both partners agree to in writing, then the rules are clear and "written in stone". Any time the other individual doesn't uphold their end of the bargain, the partner can go back to the document and show the offender where they are wrong. By upholding this agreement and constantly revisiting it, the rules are set that both partners agree to. One important note is to include a buyout clause for either partner based upon a multiple of sales or net income. This allows both parties plan in advance should something not go as planned. By placing some time and effort into developing a system for working together, you will save hours of frustration and possibly even legal fees down the road.
With this thought in mind, good luck starting your partnership!