Africa-Press – Uganda. Doing business is a game of numbers. Be sure to get into calculations, calculations that might be seeking to mobile capital or something around.
Some people will borrow while others will pool together in different forms to raise enough capital.
Just like many business startups, Mary Twinemasiko and her siblings jointly invested in a piece of land. It was a joint venture arrangement of sorts.
Since they now had land, they needed to invest in a business and the best option was exploring possibilities in the hospitality sector.
After days of looking around, they concluded that a bed and breakfast was the best investment.
However, two years later, things had gone south. The business had not worked out the way it had been expected.
“We would argue about different things, especially taking out money and how it would be used,” Twinemasiko recounts.
Apart from money, she says, they would never agree on a number of issues including the possibility of expanding the business or resizing during difficult times.
“We never saw this coming yet it was not easy to go separate ways later alone share the little money that we had as capital and how we were going to deal with the land,” Twinemasiko says.
Twinemasiko is not alone in this kind of dilemma. Many have been victims of joint ventures that split but with a difficult ending.
Teaming together
Joint ventures can be between individuals or companies that come together with a common purpose.
Whereas individuals might come together in search of capital, companies mostly form joint ventures to build capacity or acquire certain expertise that might be unique to a particular company.
As a result, many of them limp into age-old problems that make them split before they can achieve the intended target.
The splits are sometimes costly and extremely damaging, thus it is important to explore how to avoid such scenarios.
According to Alson Mukabire, a lawyer, joint ventures seek targeted benefits.
Therefore, he says, a split means that the intended objective is not achieved which creates a loss for all involved parties.
“Work out a working plan even where you don’t agree if the joint venture has already been executed,” he says.
However, he adds that if it is in the formative stage, clearly state the objectives, input of each party and when you expect it to expire.
Equally, Rama Omonya, a lawyer, policy analyst and business advisory consultant, says a joint venture is not cast in stone. It can be collapsed into something, giving involved parties to take their targets to the end without splitting.
“They can form a new entity for example; A Limited and B Limited can come together to form AB Joint Venture Limited. It this does not work, then the other option is to form a partnership where the two entities retain their identities but form a partnership,” he says.
Many people confuse joint ventures with partnerships.
However, to get the best out of pooled setups, you need differentiate the two.
A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits.
There are several types of partnerships and in such setups, all partners share liabilities and profits equally, contrary to other arrangements where subscribers have limited liability.
Factors to consider before starting up a joint venture
According to Omonya, businesses enter into joint ventures to leverage on the strength of others.
For instance, he says, where a construction firm may have technical capabilities but lacks financial capacity to execute a contract, it may enter into a joint venture to attain capital instead of borrowing.
“You bring on board a partner that can mobilise cheaper capital,” he says.
However, he says, there are relevant factors to consider before forming a joint venture.
First, there must be need. In other words, the must be a certain expertise that lacks and is likely to impede you from completing your project.
You must understand the status of the business that you seek to form a joint venture. It is important that you don’t get sucked into forming a joint venture that might drag you down the drain.
Additionally, from the onset you must know, how the joint venture will be structured.
You must reach a conclusion on who will manage what, what will be each other’s’ contribution, how risks and profits will be shared and such others.
Godwin Juma, who works with Building Networks, believes joint ventures are strategic business models that seek to deliver mutual benefits.
Therefore, to ensure that a joint venture succeeds, he says changes brought about by either of the parties must not dismantle the culture, habits and relations of either and none of them must never surrender its identity to the other.
Joint ventures, just like any business, carry several risks.
Therefore, Juma argues, they must be legally grounded with sufficient legal advise. Beyond this, conducting due diligence and background checks on intending partners is important and must be a priority for any business.
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