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How to work with silent partners

How to work with silent partners

Silent partners can provide a financial boost to your business. However, going into a silent partnership can be complex, particularly when they want to take part in the day-to-day running of the business. Here are some things to consider when working with a silent partner.

 

How to allocate profits and losses

All parties should agree up-front on how profits and losses will be allocated. For example, if a silent partner invests in 25 per cent of the company, do they receive less than a 25 per cent return because they don’t handle the operation of the business? Also, if your business runs a loss, how much does a silent partner lose? Having this clearly laid out up front can help prevent a lot of confusion and potential lawsuits in the future.

Duration of the partnership

Ensure both parties have a clear understanding of what is expected of them and how long the partnership will last. Is it just a one-off financial boost or will a silent partner provide additional funding if the company finds itself in financial trouble?

Be professional

Silent partners may come in the form of a family member or friend. Don’t let this be a reason for not signing a contract. The best laid plans can go wrong, so treating everyone who invests in your business as a professional will help ensure there is less room for dispute. It’s a good idea not to rely on verbal agreements and ensure everything is kept in writing.

Determine involvement

A silent partner may want greater involvement in the operation of your business than just a cash injection. Discuss how much involvement a silent partner can have. For example, they may simply want to offer ideas on improving the business or they may like to be actively involved in running it. Some silent partners may also want a say in the management of the business. Determine how involved your partner wants to be and what you’re comfortable with.

Exit strategy

Having a clear contract that both parties adhere to is vital to a successful partnership. Every contract should include an exit strategy and the steps that should be taken in the event either party is unhappy with where the business relationship is heading. Discuss when a partnership might be terminated and how much notice each party is required to give.

Silent partners can help your business by providing a much-needed financial investment. Knowing how to work with a silent partner will ensure the relationship is successful and that it helps your business grow.

If you’re considering going into a silent partnership it’s worth seeking professional advice beforehand. Here are some tips on choosing the right business advisor for your needs.

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