Many businesses are turning to strategic alliances or joint ventures as a route to growth writes Melanie Richardson, Head of Corporate Business at leading accountants Swindells.
“There are basically three main ways a business can grow,” says Melanie, “organically from within, by merger or acquisition, or through a joint venture or strategic alliance. The credit crunch and cash squeeze have severely limited many business options for organic growth and JVs or strategic alliances can in certain circumstances, offer some of the benefits of an “M&A” but without the irreversible commitment.
A joint venture is different from a strategic alliance because it involves setting up a third party legal entity which a strategic alliance does not.
“In my experience,” says Melanie, “businesses enter into JVs for many reasons; to increase capacity, to access new technologies, to enter new markets or as a route to new markets especially overseas”.
A JV does not need to be a multi million pound venture, many small businesses enter into successful agreements with other similar sized businesses or in the right circumstances, with a larger concern.
Most business owners follow four basic stages in setting up a joint venture:
Firstly they assess suitability – clarify what you want the proposed venture to achieve and set clear goals and objectives. It is vital to consider whether a JV sits within your own culture and is compatible to your overall strategy.
Secondly, finding the right partner is critical. Often business owners have a partner in mind from amongst their suppliers or customers. “The important thing is to look for a good match,” writes Melanie,” where the resources, skills and assets of your chosen partner complement your own.”
Lastly, before sealing any deal you must get clear agreement on the objectives and duration of the agreement, clear operational responsibilities the financial contributions required by both parties and how profits will be shared. Finally draw up and sign agreements which need to include how the JV will be managed, procedures for resolving disputes and how the venture will come to an end.
Melanie writes “there is much to consider and professional advice and support is essential, however, although the process can appear to be demanding, the Joint Venture and the less onerous strategic alliance will I am sure, play an increasing role in business growth.”
For more information contact Melanie @ melanier@swindellsaccounting.co.uk or 01825 763366
