If organised correctly, a joint venture can be a mutually rewarding business endeavour that reaps financial rewards for everyone involved. However, if the implementation is rushed or the concept isn’t properly thought through, it can be costly and do significant reputational damage.
In this article, 1st Formations – who specialise in UK company formations – tick off the dos and don’ts for business owners before they embark on a joint venture. Let’s get started.
Do’s
1. Your due diligence
You must do your due diligence regarding the business that you’re going to be working with on the project. This is to ensure that the venture goes smoothly and to reduce the risk of any reputational damage being done to your good name.
Start by assessing the business’s current financial situation using the Companies House ‘Search the register’ tool. Provided that the business is operating as a limited company, this free website will allow you to download the annual accounts that the company has delivered, giving you important financial insight. You can also see if the company is behind with any of its filing obligations, giving you a clear idea of how organised the people behind the business are.
What’s more, by still using the tool, you can delve further into the background of the individuals by completing free director searches. This will allow you to see if they operate or are associated with any other businesses, and how successful these businesses are.
To give yourself further financial insight, consider purchasing a credit report on the company. Amongst other financial information, this will allow you to see the business’s credit rating – which you can use to judge how suitable the business is as a partner.
Once you’re done with the financial side of things, carry out general research online by looking at customer reviews, social media accounts, and relevant industry forums where they may be being discussed.
If you’re satisfied with what you find, great – get started. However, if you do see any red flags, raise these with the potential partner to get an explanation. If their response is not to your liking, it’s vital that you protect your business and pull the plug before any damage is done.
2. Prepare to relinquish some control
When you engage in a joint venture, you must remember that ultimately this is a collaboration. A coming together of two or more parties to lend their expertise and reach a clear goal (more on this in a bit). There will be areas in which you should lead and areas in which the partner leads, depending on what you do and don’t specialise in.
Having done the necessary due diligence, you now must trust the partner and let them do the necessary work – which yes, will require you to relinquish some control of the project. Demonstrate confidence in their knowledge and abilities by knowing when to take a step back and listen.
This might mean setting a price point that you’re not sure about, using a piece of copy that you wouldn’t necessarily have chosen, or generally delivering the product or service in a slightly different way than you initially imagined. Yes, by all means, speak up and raise concerns, but don’t forget the reasons why you have chosen to partner up with this particular business or individual. Let them do what they excel at.
3. Set clear goals and targets
As with any business endeavour, one of your first discussions should be to set some realistic goals and targets. When do you aim to go live with the product or service? What does success look like? What would failure look like? These are all conversations that you need to have early on – as any disagreement would not bode well. You and your partner must be aligned on what can and can’t be delivered.
Clear SMART (specific, measurable, achievable, relevant, and time-bound) goals will provide purpose and clarity. All parties will be aware of the expectations and know the benchmarks as the venture progresses. This will help you prioritise tasks, stay motivated and keep the project on track.
Without goals in place, there will be a significant lack of focus. What looks like success to one side of the deal, could be a failure to the other – which in turn would be disastrous from a project management perspective.
4. Draft and sign a joint venture agreement
It is essential that you work with your partner(s) to draw up a legal contract that clearly defines all parameters of the project. Who is responsible for what? What are the commercials? When will these be paid? How long will the project last for? How will confidential information and data be handled? Is there a break clause if things don’t go to plan? At what point can this be triggered?
This document will clearly define the roles, responsibilities and expectations of all parties involved. You will understand your obligations to the partner, and they will understand their obligations to you.
By getting this document in place, there can be no confusion – every detail of the arrangement is set out. This should prevent any misunderstandings and hopefully, help you avoid any disputes regarding the joint venture further down the line.
We strongly recommend seeking professional assistance when drafting your joint venture agreement.
Don’ts
1. Neglect conceptualising
Preparing a new product or service is hard enough when it’s just one business involved. When you add another business (or several businesses) into the mix – the opportunities for errors multiply.
Every single aspect of what your joint venture is delivering needs to be mapped out and documented. There should not be any element that isn’t covered. Who does what and when do they do it?
Whilst the joining venture agreement covers the finer details (and will overlap with this concept document), this road map should provide information about the process in its entirety, from beginning to end. This will help you see the potential bottlenecks as well as areas that have been completely neglected.
In a joint venture, it’s too easy to make assumptions. Presuming something has been taken care of. Whatever your joint venture is providing, complete a comprehensive conceptualisation as soon as possible to ensure you truly have thought of everything.
2. Ignore problems
At any stage of the joint venture, if you are unhappy about the standard of any work that is being done by your partners or are generally concerned about the venture as a whole, you must work with the business in question to address these issues. For the purposes of the joint venture, and to the outsider, you and the partner are the same business. If the product or service that you are providing is not up to the expected standards, it will damage your reputation.
A quiet life is not an option here. If there is a situation then you will need to have an uncomfortable conversation with the partner and raise it. It may be something that they are wholly unaware of or simply down to a simple misunderstanding.
Throughout the lifespan of the joint venture, whether it’s only going to last a matter of months or indefinitely, you need to meet regularly to discuss the project. From the outset, ensure that these discussions are candid. Always be honest, raise issues as and when you see them and hold your hands up if a problem has occurred on your end.
3. Be hard to work with
At the same time as always being open and honest, you must also be mindful of how you conduct yourself generally (as well as obviously being mindful of the behaviour of your team). In this digital age, where business relationships are played out over LinkedIn – any wrongdoing on your part is unlikely to be kept quiet and could result in serious reputational damage.
Despite any challenges that you face, always remain professional. Of course, there will be instances where this is easier said than done – especially if you feel that the partner is not delivering on what was promised. But even in this scenario, keep a cool head and provide any feedback that you do have – in a way that does not compromise your business.
The business world is a surprisingly small one. It’s important to remember that one bad relationship could have ongoing ramifications that negatively impact your operation.
4. Sit idle
Once your offering has gone live, don’t sit back and watch it play out. Getting the joint venture off the ground and providing a product and service is just the beginning. Once this has happened you need to remain proactive.
Stay in constant dialogue with your partner. Discuss what is and isn’t working, always looking for possible tweaks and improvements. Just like any other business venture, nailing a joint venture first-time is a rarity. It takes hard work, time and constant dialogue.
So, there you have it
Those are the do’s and don’ts of joint ventures. If you are considering teaming up with another business to deliver a product or service, put the tips covered in this article into practice today to give the project the best possible chance of success. We hope you have found this useful – thanks for reading.
1st Formations are the UK’s premier company formation service. If you’re looking to get started in business with a limited company, they’re the ideal starting point. Prices start from only £12.99 and companies are typically registered in 3 -6 working hours. What are you waiting for, start your business adventure today by picking the company formation package that’s right for you.