Setting up a Joint Venture

By Karen Purves February 13th, 2011 business growth No Comments

A great way to grow your business is through joint ventures.

What should be simple and straight forward can become a business owners worst nightmare.

Due Diligence

Take every care with making sure the person is of good character. Even though you may have known them as a friend and have mutual acquaintances, this is no reason to do your due diligence. Ask them to give details of their suppliers so you can talk about how they treat them, whether they pay on time and would the supplier give their client a testimonial. Yes, I know it may seem like the wrong way round, but you may be surprised in what you find for good, hopefully.

Next turn your attention to the business. How long has it been trading? Is it profitable? Consider what the problems could be if the turnover is low after a long time. Talk to your potential business partner and ask them what happened, if anything.  If there hasn’t been a loss of a major client or change in direction that may be reasons for the low turnover or low profitability. If there is nothing major, consider carefully whether doing a joint venture with a company that just doesn’t seem to be able to get its act together. There will be reasons for this and it won’t help your profitability.

The venture itself

Here are 8 points to work through

1. Have a shared goal for the joint venture

   There is nothing worse than one partner going to revenue while the other is looking for increased awareness. Unless that is how you are going to work and divide the profits accordingly.

2. Create an organisation chart of the jobs required for the goal to be achieved

   Just because someone does that role in their business, consider carefully whether this is appropriate for this joint venture.

3. Choose the structure at the outset

   Agree who is going to be the accountant and the structure of the joint venture. Have the relationship and agreement drawn up for signature. No signature, no JV!

4. Draw up Job descriptions

   Include the job descriptions and organisational chart as part of the joint venture

5. Agree the frequency of meetings

   There is nothing worse than finding that there is no structure for reporting the good news and the bad.

6. Agree what will happen if…

   Yes, this is hard because you are positive and optimistic about the joint venture and want it to be successful. But, believe me, it is much easier now to decide what will happen to overcome poor performance, non-payment of the partners or suppliers. Reacting when there is an issue is so much more difficult.

7. Make it clear who is in the relationship

   This may seem to be odd. But, I’ve had an experience where, even though there were only two signatures on the agreement, there was a third person in the relationship and business. This just complicates everything and may even lead to the demise of the JV.

8. Do the action as agreed

   Providing everyone does what they’ve agreed to do by the date they’ve agreed, there shouldn’t be any problems. A=If there are, use your reporting structure to flag up quickly…. too much time lapses and you may have a whole new set of problems.

This is my hitlist for making a joint venture successful. These have been drawn from my experience of having joint ventures. Armed with these, unfortunately, doesn’t guarantee success. But it will help! Enjoy!