The Vital Point of Joint Ventures

You've decided to enter into a joint venture (JV). That's great! If you think it through carefully and take the time to treat it like a brand new business, your JV could help your business grow exponentially.

The most important thing to remember when entering into a JV, as with any new business venture, is to think through and carefully lay out every part of the effort. The No. 1 most important thing -- and this is absolutely vital -- is to make sure that every single detail is in writing. Keep in mind that if it's not in writing, you will not have a road map to getting started on the right foot, keeping to the straight and narrow, reaching your goals for success and eventually dissolving the partnership if necessary.

These are the three essential documents every joint venture must create: 1) a joint venture agreement; 2) a business plan; and, 3) an exit strategy.

The first document, the agreement, is really a contract. You and your partner will create a legal document that outlines and defines the entity you are forming. It will list the goals of the venture, each side's responsibilities, how long the JV is expected to last or the circumstances that would lead to its demise. It also will cover how revenues and profits will be split, and everyone will want to know that up front.

Because of its legal nature, some legal counsel is advisable for both parties. You and your partner may be able to draft the agreement together. However, it's a good idea for both partners to have independent legal counsel review the document before it's signed. This will help protect the interests of both partners.

If you decided to draft the agreement with your partner, look for a good template or checklist to help you. There's so much to cover that some important items could easily be missed. Templates and checklists may be available through your lawyer or local business organizations, or you can search for them on the Internet.

Then there's the business plan. This document absolutely requires the presence and input of all parties in the agreement. Writing the document can also be fun, because it outlines all your future plans, such as goals, revenue benchmarks and what each party is bringing to the JV. The business plan will also outline how you intend to fund the venture, and how you plan to acquire loans or other outside money if necessary.

Even if you are flush with cash and don't need external funding, it is absolutely vital that you write a business plan. You and your partner will refer back to this document time and again when you are reviewing your progress and planning your future. You can also look to the business plan to watch the progress of your day-to-day operations, such as management, human resources and communication strategies.

When they're done right, business plans can be long -- and often complicated. If this is your first time creating a business plan, it is advisable that you do plenty of research or hire a professional writer. There are writers who do nothing but write business plans for people just like you, and they are easy to find on the Web. Plus, a professional-sounding business plan has a greater chance of getting funded, if that's what you're after.

Sadly but truly, you will also need an exit strategy. Don't worry, you aren't condemning yourself to failure by thinking about how it might end. The average joint venture lasts about seven years, and they end for a myriad of reasons. Your JV might have an expiration date when you write your initial contract, or someone's circumstances may change -- you might win the lottery! You just never know.

A proper plan for an exit strategy will protect both partners' assets and trademarks. If you brought a trademarked item into the partnership, you want to make sure to leave with that trademark intact. Even better, if you decide to sell the JV for a profit, you want to make sure the profit-sharing details are square from the start.

Your exit strategy must specifically state who gets what when the JV ends. It also needs to include a list of events that might signal the end of the JV, like reaching specific goals, certain changes in the market, or selling the company. Again, this is a document with a lot of legal ramifications, so it's best to have your lawyer review it.

When you go about it the right way and put all these aspects of your JV in writing, it will ensure that you walk out of the agreement with everything you had when you walked in. Creating these documents also reveals a sense of your professionalism and commitment to success. Most important, they will keep you and your business partner from fighting a nasty legal battle if and when the partnership is over.