03 Nov Why Should You Form a Joint Venture?
By: Barry E. Haimo, Esq.
November 03, 2016
Why Should You Form a Joint Venture?
So you’ve got this big idea for your business. It involves a lot of moving parts and would require a lot of costs up front, but this is a project you can’t sleep on – the potential rewards are just too tempting!
If only your business were a little larger, or you had more resources to get the project going off the ground…
Have you considered entering into a joint venture?
Be sure to read up on previous posts in our knowledge base about what a joint venture is, and how one is typically formed. If you are still not sure about whether a joint venture is the best way to go for your business’s latest project or endeavor, consider the following benefits:
Keeping Your Identity, Investing for the Future
Your business does not have to change or work under a new title when you enter into a joint venture, but it does allow you to be exposed to a wider customer base. In a way, forming a joint venture can be looked at as both an investment and a marketing strategy for your business.
Shared Risks + Shared Costs
If you wanted to enter this project solo, you would have to invest more of your own resources and take on more of the costs and risks. It might just not be worth it. A joint venture allows you to share risks, share costs, and ultimately reduce the amount of debt that you may have to repay throughout and after the joint venture.
Additional Purchasing Power
Let’s zoom in on the benefit of sharing costs. Pooling your resources together with a partner (or multiple partners) allows you to form a powerhouse business. Your buying power will go a lot farther when you are making purchases with other businesses’ money behind you.
It’s not just extra money, either. When you team up with another business, you often have access to their customer information and database, which allows you to increase your reach and potentially get more people interested in your business through one that they already trust. That’s called leverage.
You may also have access to different departments, staff, and technology that you do not have available in your business. If you have been trying to break into a certain market with little success, the help of another partner may give you the resources (or the knowledge) to move forward and meet your goals.
Ideas for the Future
Joint ventures can be a great learning opportunity. Seeing firsthand how another business uses resources may help you introduce new and exciting ideas to grow your company – even after you and your partners go separate ways. Exposing your staff to a different business will also give them a new look at how people and departments communicate and manage day-to-day operations.
Of course, there are risks that come with forming a joint venture, including:
- More partners means a higher risk for unclear communication
- Different partners may have different objectives/goals
- Staff may unwilling or unable to integrate or work in a different or new environment
- One partner may put in an unequal amount of effort/resources, while both partner receive equal profits/benefits
Consider the benefits and risks of a joint venture before you enter into one, and how you can work with your team and your partners to reduce the common risks that were mentioned above. Most importantly, document the material terms of agreement with a joint venture agreement. For a more in-depth look at how a joint venture can affect your business, contact a Florida business planning attorney.
Barry E. Haimo, Esq.