Before starting a joint venture, both businesses need to understand what they each want from the relationship.
Issues to consider when planning a joint venture
Normally, you will want to find a partner who is compatible with your business. This partner can be:
- a larger business - who can offer you their resources such as a strong distribution network, specialist employees and finance
- a smaller business - who may be more flexible, innovative or simply provide you with access to new products or intellectual property
- a supplier - who can offer you their knowledge of new technologies and a better quality of service, in return for a guaranteed volume of sales to you
As well as your own needs, you should think about what your joint venture partner will be hoping to get from the arrangement. You will need to agree on objectives that suit both of you. You will need to agree on things like:
- the structure of your joint venture
- who will manage the venture and how
- who will finance the venture and how
- the assets and resources you will both contribute
- who will own any intellectual property that comes out of the venture
- how you will share profits and any potential losses
- how you will handle any potential disputes
See how to create a joint venture agreement.
It's important to keep in mind from the start that joint ventures are generally temporary arrangements, and that they normally end when the objectives of the venture are met. You should plan your exit strategy from the beginning, to make sure you get a return on your investment in the joint venture. See more on ending a joint venture.
Strategy for a mutually beneficial joint venture
Whatever your business aims, the arrangement needs to be fair to both parties. Any deal should:
- recognise what you each contribute
- ensure that you both understand what the agreement is expected to achieve
- set realistic expectations and allow success to be measured
The objectives you agree should be turned into a working relationship that encourages teamwork and trust. See 6 tips for a successful joint venture.