Bringing a partner into your business may be one of the most significant decisions you make about your business. They may be bringing seed money, valuable expertise, and business skills into your company. Partnerships can be advantageous for both parties when you combine both money and skillsets. It can also be risky. You need as much information as possible about your potential partner before making such a momentous decision.
Doing a background check seems invasive, and you may worry that it displays distrust. Having a partner in business means taking a significant risk that someone else will care as much as you do about the growth and future of your business. When considering a partnership, it is not the time to take someone at their word. You need a reliable picture of your partner’s past decisions and current financial standing. A background check can help you determine if what they bring to the business is worth the risk you will be taking.
Doing a background check is just one step in assuring that your partnership begins on solid ground. There are many times when a background check is a prudent business practice. An overwhelming majority of companies now routinely do background checks on their employees. Performing a background check on a partner or potential partner is a smart busindess decision.
A background check can reveal:
- A criminal history
- Ongoing civil litigation that could result in exposure for your business
- Past civil litigation for things like a breach of contract
- Tax liens
- A troubled financial history
Any of those things could spell trouble for your business if you go into a partnership unaware. Both partners should disclose any issues that might appear on a background check during initial discussions. If one partner failed to disclose relevant information, that is a red flag that the trust level you need for a partnership to work is missing. A successful partnership requires trust between both partners. The initial disclosure, or lack thereof, is a good initial test of trust.
Disclosing issues beforehand allows both partners to make an informed decision about moving forward with the partnership. It can also allow both parties to work together to minimize any risks to the business from something in the partners’ background.
Reputation is everything in business. Although it will not appear on a profit and loss statement, it is still an asset or a liability. You need to consider this when deciding who to bring on as a partner. Your business has a reputation that you have helped build. Is there something in a potential partner’s background that could damage that hard-earned reputation? Are there ways you can mitigate the potential damage? You need to understand the reputation of your partner and then decide if that reputation will help or hurt your business.
Before moving ahead with a partnership, you need to be able to make an informed decision. You can only make a truly informed decision when you have all the facts in front of you. A background check is only one tool to help you form a definitive list of pros and cons.
A squeaky clean background is not necessary for a partnership to work, but trust is. Did your partner tell you everything beforehand? Do things in the person’s past have the ability to harm your business today? What steps can be taken to mitigate risks from the partner’s past?
Once you have the background check and you still feel comfortable with moving forward, it is prudent to check other sources that a background check may not cover:
- Check the person’s social media profiles. Go back for some time. Does this person’s social media presence mesh with who they have presented themselves to be? Is there personal drama that seems likely to interfere with business?
- Do a credit check. Has the person represented the real state of their financial situation?
- Talk to people who have been in business with this person in the past.
Once you have completed the above steps, you have done due diligence in determining if they are a good fit for a partnership.