So you're going to take the plunge and start a joint venture. Excellent! As long as you consider the details and think it through as if it's a whole new business, your new venture could mean exponentially greater profits for you! The key to creating a truly successful JV is to take the time to thoroughly plan every aspect of the partnership. And, you need to get everything -- and I do mean everything -- in writing. Those written documents are essential to getting started on the right path to success, staying on the path, and safely stepping off it if necessary. There are three written documents that are necessary for every joint venture: 1) a joint venture agreement; 2) a business plan; and, 3) an exit strategy. The first document, the agreement, is really a contract.
You and your partner will create a legal document that outlines and defines the entity you are forming. It will list the goals of the venture, each side's responsibilities, how long the JV is expected to last or the circumstances that would lead to its demise. It also will cover how revenues and profits will be split, and everyone will want to know that up front.
Because of its legal nature, some legal counsel is advisable for both parties. You and your partner may be able to draft the agreement together. However, it's a good idea for both partners to have independent legal counsel review the document before it's signed. This will help protect the interests of both partners. If you decided to draft the agreement with your partner, look for a good template or checklist to help you. There's so much to cover that some important items could easily be missed.
Templates and checklists may be available through your lawyer or local business organizations, or you can search for them on the Internet. Then there's the business plan. This document absolutely requires the presence and input of all parties in the agreement. Writing the document can also be fun, because it outlines all your future plans, such as goals, revenue benchmarks and what each party is bringing to the JV. The business plan will also outline how you intend to fund the venture, and how you plan to acquire loans or other outside money if necessary. Even if you are flush with cash and don't need external funding, it is absolutely vital that you write a business plan.
You and your partner will refer back to this document time and again when you are reviewing your progress and planning your future. You can also look to the business plan to watch the progress of your day-to-day operations, such as management, human resources and communication strategies. When they're done right, business plans can be long -- and often complicated. If this is your first time creating a business plan, it is advisable that you do plenty of research or hire a professional writer. There are writers who do nothing but write business plans for people just like you, and they are easy to find on the Web.
Plus, a professional-sounding business plan has a greater chance of getting funded, if that's what you're after. Sadly but truly, you will also need an exit strategy. Don't worry, you aren't condemning yourself to failure by thinking about how it might end. The average joint venture lasts about seven years, and they end for a myriad of reasons.
Your JV might have an expiration date when you write your initial contract, or someone's circumstances may change -- you might win the lottery! You just never know. A good exit strategy protects your investment in the JV. For example, if you bring a trademarked item into the partnership, you'll want to make sure you walk away from the JV still holding full rights to that item. Or, if the business that results from the JV is to be sold, you'll want to ensure you get your proper share of the profits. Your exit strategy must specifically state who gets what when the JV ends.
It also needs to include a list of events that might signal the end of the JV, like reaching specific goals, certain changes in the market, or selling the company. Again, this is a document with a lot of legal ramifications, so it's best to have your lawyer review it. When you prepare for your new partnership by putting all your plans in writing, not only do you prepare for your great success, but you and your partner can be assured that you are truly committed to doing business together. These documents are irreplaceable for following your goals, seeing your JV reach milestones and looking back at where you started from a vantage point of success. Plus, they can keep you out of a lot of legal hot water if anything goes wrong.
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