Documenting Partnerships in Your Business Plan
Forging partnerships to improve market penetration has become commonplace, particularly for “new economy” businesses. And, most companies proudly mention their many partnerships in their business plans.
The fact is that, regardless of whom the partnership is with, partnerships by themselves are meaningless. What are meaningful are the terms of the partnership? For instance, while it sounds great to have a partnership with a Fortune 500 company, the details of the partnership are what investors find important. For instance, investors will look poorly upon a partnership in which the Fortune 500 company earns 90% commissions on customers it refers. On the other hand, investors would look favourably upon a more equitable partnership.
As such, be sure to detail the specifics of the partnerships. This includes factors such as how the partnership will work, payment terms, contract length, minimum and/or maximum guarantees, the type of customer leads expected from each partner, timing of payments, etc. In addition, if partnerships are a key part of the business plan, expect prudent investors to interview the partners and scrutinize partnership contracts.
Partnerships can be a major factor in the success of growing companies, providing leads, sales, capital and/or other critical benefits. However, ventures should be careful not to place too much emphasis on any one partner in their business plan. Partnership agreements, like other legal agreements, can be breached, and if the venture positions any one partner as critical to its success, this will become a risk factor for investors.
Overall, partners can provide a great boost to growing ventures. Business plans should not only discuss who the partners are but detail the terms of the partnerships and how they will benefit the company. Finally, the business plan must not place too much emphasis on any one partner in order to convince investors that the business is capable of success even without it.