Joint ventures can be risky, but if you use the right processes and carry out due diligence checks, you can increase your chances of success. This checklist can help you prepare for and plan a successful joint venture.
Are you ready for a joint venture?
To check if your business is ready for a joint venture, you should:
- research the activities of other businesses in this area
- carry out a SWOT (strengths, weaknesses, opportunities, threats) analysis of your business
- compare your working methods with those of potential partners
- consult your employees to find out their feelings about a joint venture
Choosing the right partner
When choosing a joint venture partner, you should consider:
- existing customers and suppliers, competitors and professional associates as partners
- if the culture of a proposed partner fits with that of your organisation
- if the finances of the proposed partner organisation are sound
- potential for overseas sales or activities
Read more about choosing the right joint venture partner.
Financing a joint venture
You should prepare the following documents for a joint venture:
- business plan
- marketing plan
- cashflow projection
Each partner should agree who is investing what, and in what form - eg cash or other assets. If your venture needs external funding, the partners should agree:
- sources of funding, eg a share issue
- who will borrow the funds
- how the borrowing will be guaranteed
You should also agree arrangements for profit and loss, eg:
- how any profits or losses should be divided
- how capital gains or losses should be divided
- whether one partner will be paid for providing services, other than through a share of profits
See how to plan your joint venture relationship.
Implementing a joint venture
When you are ready to implement a joint venture, you should set out the terms and conditions of the partnership arrangement in a written joint venture agreement. This should include:
- clear business objectives
- communication arrangements between organisations/teams
- financial arrangements
- protection of your interests, eg trade secrets
- day-to-day and strategic decision making
- if either party can pursue other business during the joint venture
- dispute resolution procedures
The written agreement should also specify the legal structure for your joint venture, eg:
- contractual co-operation for a defined project
- partnership or unlimited partnership
- limited liability company
- full merger of the two organisations
See how to create a joint venture agreement.
Bank account arrangements will depend on the legal model you choose, although you can set up a new account for a single project. You should agree:
- in whose name account(s) are set up
- arrangements for depositing or withdrawing funds, including co-signatories
Sourcing business together
You should agree in advance which organisation has responsibility for:
- sales activities
- marketing activities
- new business generation
You should agree such arrangements in the joint venture business and marketing plans.
Terminating the joint venture
The agreement needs to make provision for terminating the joint venture, covering:
- termination procedure or an exit strategy
- ownership of assets in the joint venture
- allocation of any liabilities resulting from the joint venture
See more on ending a joint venture.