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Teaming
up with another business can be a lucrative way to maximize efficiency and
profits. But, joint ventures need to be managed carefully and documented
well to avoid major pitfalls and legal problems.
It’s
important to choose a business that is a good match for your business. A
publisher of legal books might team up with a website that offers legal
advice. The publisher can provide content in exchange for a banner ad. A
hair salon with extra space may team up with a nail shop to provide a
complete hair and nail salon.
Remember
that each of you stands to gain, and possibly lose, profits as a result of
teaming up. For this reason, it’s absolutely essential that you have a
written agreement.
Your
agreement should start off with a mission statement and the nature of your
venture together. It should detail the length of the agreement. Is it until
a certain project is complete, or is it ongoing for several years?
Additionally, it’s important to be specific about exactly what each
business is bringing to the venture: cash, facilities, inventory, supplies,
services, consulting, people. Be sure to detail not only what each company
is bringing, but how much each company is bringing to the venture and when.
Spell out specific deadlines and expectations.
Other
questions your agreement should cover are: How will the venture be managed?
Who will be in charge of what? Who can speak for the venture? Who will bill
customers? How will money be collected?
How
are profits defined--and how will they be divided? When it comes to this
part of the agreement, you may want to consider the advice of an accountant
who can come up with an appropriate formula. It may be a strict 50/50
sharing or it may be more complicated based on who is bringing what to the
venture. Professional assistance with this can help avoid major problems
down the road. Like profits, you want to carefully outline how losses will
be allocated.
Consider
these important questions as well. How will finances be handled? Will you
each keep accounts? Will someone outside combine the two? Or will you turn
all the accounting over to a third party--a bookkeeper, for example, or an
accounting firm?
Don’t
forget insurance. What insurance will be carried, and who will pay for it?
Make sure real estate, equipment, vehicles, supplies and inventory are
covered. Liability insurance is important as well. It covers injury to
people or property damaged by your joint venture. Finally, make sure you
provide worker's compensation insurance for all employees.
Think
ahead of the game and consider what happens when the venture is over. How
will assets be split? How will equipment, copyrighted material, trade
secrets, clients and contacts be dealt with at the end? Taking time
to clarify these issues now will prevent large and expensive legal problems
in the future.
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