joint venture marketing
As a small business owner you have numerous opportunities to expand and grow your business. But the action plan or approach differs from one business type to another. Joint ventures allow two or more business enterprises to share expenses, and hopefully profits, involved in expanding their respective businesses. Do not mistake this for a legal partnership or corporation because joint venture agreements are generally for a limited time or for a particular purpose. The agreement can be either formal or informal keeping in mind the primary objective is for both parties to expand their customer base by pooling their resources.
Types of joint ventures
Equity-based joint ventures call for partners to share their resources and funding for a specific project which they are unable to effectively or efficiently manage alone. Combined with their partner’s capital they are able to manage the costs and expenses of the project, and the workload is also distributed, which increases efficiency.
Non equity-based joint ventures are those in which one partner contributes cash and limits the other one’s services to a particular area. For example, I have cash but I don’t have the technical expertise for a particular business so I would ask someone to provide me with their technical assistance only. In this type joint venture you restrict the participation of the other partner to providing a skill or service only.
Tax implications of joint ventures
As I mentioned earlier, joint ventures are not a separate legal entity like corporations, and therefore not subject to taxes. Each partner pays taxes on their shares of profits only, unlike a corporation where taxes are deducted from the corporation’s earnings and then from the shareholder’s earnings when dividends are distributed. For more information, check with your tax professional.
Precautions and measures to be taken
Small business owners in a hurry to increase their bottom line perhaps are tempted to jump into joint ventures without the necessary adequate planning necessary to develop their management strategy. When goals are not properly defined and responsibilities are not discussed and distributed, the results are often disappointing. The problem can be compounded if one of partners is not communicative or lack in key skills.
Below I will discuss a few key skills that I believe are necessary for the success of any joint venture:
- Establishing a business relationship built on trust is a given as a requirement or a successful join venture. All parties need to feel confident the other can be relied on to carry out the agreed responsibilities.
- Joint ventures, although they may have similarities with your current projects, are sufficiently different from your current business model that it requires a unique approach. The partners must possess the ability to think out of the box or their usual comfort zone.
- Understanding the importance of maintaining good communications with your partner to ensure you are on the same page, leaving little room for misunderstanding is critical.
So carefully consider all the pros and corns before starting a joint venture. With the right preparation the results can be profitable for all parties.
christian fea is CEO of Synertegic, Inc. A joint venture marketing firm. He exemplifies how to profit from Joint Venture relationships by creating profit centers with minimal risk and maximum profitability.
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