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Does finding a new business partner require documentation?

by | Jun 16, 2022 | Business Law

Plans to grow your business may lead you to begin thinking about bringing on a new partner. Finding an individual with ample capital and additional skills may serve to revitalize an otherwise cash-challenged enterprise.

Before meeting with potential partners, you may need to supply documents to pass a due diligence process. As described by Entrepreneur magazine, a potential partner’s accountant or attorney generally reviews documentation to evaluate a business and a proposed offer.

What type of information does due diligence look for?

Financial statements and income tax returns typically provide a reasonably clear picture of a company’s profitability and operating margin. Due diligence may also bring to light possible issues concerning a business owner’s budgeting skills. It may also reveal how well a company manages its cash flow.

Inventory records reveal the products a company offers and demonstrate how quickly they move through the business and out to its customers. A potential partner may wish to learn more about whether they sell quickly enough to generate a timely return on his or her investment.

What details might a partnership agreement highlight?

A round of thoughtful and forward-looking negotiation may clarify the contributions each party will make. As described by CNBC, dividing various responsibilities between partners helps to minimize potential disputes. It can also smooth out the management of day-to-day affairs.

An enforceable partnership agreement details each party’s ownership rights and responsibilities. The agreement may also include steps for taking legal action to recover from any damages if a partner deviates from the agreed-upon terms.

Through a combination of due diligence and a well-constructed partnership agreement, a new ownership arrangement may significantly improve your business’s outlook.