- September 16, 2017
- Posted by: Wevio
- Category: Market Research & Analysis, Wevio Blog
10 Things Before any Joint Venture
Joint ventures have long been practiced for assorted reasons such as expansion, increased market share, pooling risk, sharing costs etc. But not all joint ventures turn out to be profitable. Joint Venture is one way to save the drowning company but it involves complexities. Hence, there is some improvisation required before planning to get into the joint venture. Here are the most important 10 things before any joint venture.
#1 Proper Research and Valuation
One of the 10 things before any joint venture is research. Without enough research, no company takes this big step of getting into a joint venture. And that research should be a deep one where you not only observe the track record of that potential partner but you also try to run valuation by which you tend to identify the future trends of that company. Your research should be deep enough to come up with strong predictions. You should make sure your team is in line with their team.
Identify whether the potential partner and you together can work a profitable venture. See whether you can make profits for both of you on a short run as well as long run. Will there be enough growth opportunities for your joint venture? Would you be able to meet the expectations of the shareholders? Will your product be good enough to satisfy the consumer’s needs? Are your prospect partners in line with your ethics. Counting numbers is not all, you need to look out for the quality as well. Once you take a look at all these things you can easily figure out how things will work out.
There could be a thousand reasons for not getting into a joint venture but only one big reason is enough to get into a joint venture. So ask yourself whether your business has that need? Let us say you are a car manufacturing company and you buy some important parts for the engine. You buy it from a different company which is the only one in town to provide you the product. But then suddenly the price of those parts goes up and demand significantly falls. The company selling those parts to you is in a position of bankruptcy. Now that the company which was providing you parts at much cheaper than you will get from any different place, you might consider getting into the joint venture to save that company as well as getting those parts for cheaper prices again.
#4 Financial Risks
You need to take care of the risks once you get into the joint venture so why not reviewing it beforehand so that you do not get shocked when the company runs in losses and even better if you avoid the joint venture in that case. Financial risks such as short of capital for the level of operation decided to undergo. Risk like obligations towards the bank loans, towards the creditors, towards the employees, towards the administration and Board. You have to look out for all the financial aspects with the help of a proper research team from any consulting firm or Investment bank.
#5 Goals and Objectives
You need to be very careful with your objectives and the potential partner’s objectives and so with the goals. You should not compromise with either your goals or with their goals because that is not good for both the companies. Your mission and vision should be in line with theirs. You should be able to watch each other’s back and help in need. Goals are important to be achieved but not at the cost of losses, so you have to be aware of the probability of success. The calculations in monetary terms are required to identify important loop-holes and their costs. Goals and objectives have a major role to play in the success of any Joint Venture.
#6 Financial Obligations
Joint ventures can be tricky and can backfire hard if you do not do the necessary in time. It is very important to have a proper review of financial obligations and should make sure everything is transparent. Financial obligations like employees’ pay, operational expenses, creditors’, banks’, etc. are to be addressed. You need to be aware of the part you have obligations to and the parts your partners are liable for. Financial obligations are the biggest reason most of the JVs are not successful today. People tend to not pay enough attention to these obligations but then they suffer in the end. This is one of the things that has proved to be dangerous in the Joint Ventures.
#7 Liquidity Rights and Obligations
It is very important for the partners to review whether the liquidity rights and obligations are in place or not. As, if there are some hidden obligations, it can lead to the winding up of the business. You and your partners should tale a proper note of the issues such as liquidity rights and obligations. If you have not given a thought to it then it might leave you baffled at times of losses.
One important factor which contributes to the smooth functioning of the company after the joint venture is the relationship among the partners’ companies, as if the management can’t work together then nothing else will happen beyond chaos. Management should be of great concern while taking decisions for the Joint Venture as nothing works without management. Your major concerning points should include such as the interest of the management, the benefit of the employees, enthusiasm of the management and willingness of the employees to work together.
#9 Legal Rights and Obligations
The partners should know their legal rights and obligations to play fair in the game and make this whole setup a success because that is where all our intentions lie. Every business has different obligations and different legal rights, for example, some businesses cannot be carried on without the license, some of them cannot even be carried by the private individuals. You and your partners need to take a look at the government policies before deciding any business policies for your business.
#10 Business Commitments
An often lightly taken issue is of business commitments. Partners coming together think it is all fine to make promises in the beginning and later falter on them. Because they think it doesn’t matter when that is the thing which matters the most. Your business partners should be devoted to the business sincerely and should work together to bring a united power to improve the quality of work.
All 10 things play equally important role in the joint venture and it is a good thing to keep a track of all the things. Making sure of all these 10 things are in place is as important as the joint venture to you. So, whatever that you do with the business is your call but keeping your money at stake without considering these important points will be your biggest mistake.