If you’re thinking about starting a business you’re going to need to think about the bottom line and making a profit as quickly as possible. Working with other businesses can help you quickly build your own business.
Aligning yourself with other business owners or companies can help you :
- shorten your learning curve;
- boost your new company’s credibility;
- expand your sales or distribution channels; and
- make it more difficult for competitors.
If you are a small business owner you can “team up” with one or more other small business owners, or you can “team up” with big companies! You might want to work with another business that does what your business does, or a business that provides products or services that are complimentary to your business. The opportunities are endless.
Generally, a joint venture is when a new business entity is funded and formed by two or more existing businesses. Each of the founding businesses owns equity in the joint venture, as well as share in the revenues, expenses, and control of the enterprise. Most small businesses don’t actually form joint ventures though – instead they establish what is commonly referred to as a strategic alliance. A strategic alliance is essentially an arrangement in which two or more businesses remain independent entities but work together in some manner with the goal that each will make money. And these days – who isn’t looking to make money?
For example, a woman was recently laid off from her job as a graphic designer. She decided to start her own business and “set up shop” from her house. While she certainly had the talent to make a go of it, she didn’t have any client prospects. So she connected with a web designer who had started his own business a year ago. They joined forces to quote a job that neither of them could have bid on alone, and they got the work. Each of them still maintains their own small businesses, and they did not form a third entity, but they share a big client and are both making money. It’s a win-win all around for their client and both of them! But they were careful – and did it right. They spent the time to determine if they were a good “match,” they came up with a solid plan, and they each made sure to protect themselves legally. They also were careful to have a clear contractual agreement with their mutual client.
If you are considering forming a joint venture or strategically aligning yourself with another profession or business, find out whether or not you may have any restrictions. If you are a licensed professional your state licensing or ethical board may regulate or “strongly suggest” what you can or can’t do and who you can affiliate with. Also, carefully check your business or professional liability insurance policy to determine your coverage with regards to entering into a joint venture or strategic alliance. This can be tricky as it isn’t always spelled out. If you can’t easily identify the answer, ask your agent to tell you and then ask him/her to point out the relevant wording. You should also consult with your tax advisor to see what, if any, tax consequences you need to consider.
Finally, make sure your own business’ legal entity is established before you decide to collaborate with another business. It is often advisable to act within your business capacity as an officer or manager of your own company so as to minimize personal liability. Check with your legal advisor.
When you decide to collaborate with another person or business to form a strategic alliance, you should have a signed written document that spells out all the terms of your agreement. This is definitely the case when forming a joint venture. You and the business(es) you are joint venturing with should spell out “your deal” including what you are looking to accomplish, each of your duties, obligations and liabilities, compensation, how long the agreement will be in place, how the arrangement can be terminated, what constitutes confidential information, how the agreement can be modified, what happens if someone breaches the agreement, and what state’s laws govern the agreement.
Forming a strategic alliance can mean reaping the rewards of a team effort without loosing your business’ autonomy or sharing equity. Done correctly – it’s a great way to get a new business off the ground and put profit in your pocket.