Maybe now is the time to venture forwards

With the economic slowdown still putting the brakes on many business ambitions, now may be the ideal time to consider entering into a joint venture. Richard Hurst, director of Southampton independent accountants and business advisers HWB believes it may just be what some businesses are looking for.

There are three main ways a business can grow: organically, through a joint venture or strategic alliance or through a merger or acquisition. Two of these options look considerably less attractive through the prism of the recession.

In recent times, the credit crunch and cash squeeze brought on by the economic downturn have severely limited organic growth for many businesses. Research suggests that joint ventures have now become the preferred vehicle of growth.

Generally joint ventures offer the same benefits as mergers or acquisitions but come without the irreversible commitment and the time-consuming process of integrating assets.

A joint venture does not need to be a multi-million pound enterprise. There are many examples of small businesses entering into successful joint venture with other similar sized businesses.

Equally, in the right circumstances, a small business can enter into a joint venture with a larger concern, and there are many successful examples of these too.

 A joint venture is an entity created by two or more parties to undertake a particular activity together. The parties each agree to contribute equity to the new entity and to share in its control, revenues and expenses. It can be formed to last for the duration of a particular project or for the long term.

A joint venture can immediately deliver a number of advantages, such as increased capacity, access to new markets(especially overseas) and a wider distribution network. Other benefits flowing from a well thought out joint venture agreement include access to staff, technology and finance as well as spreading the costs and associated risks with other parties.

However, they can and do go wrong, especially if they are not well researched beforehand or there is a fundamental incompatibility of aims or expectations between the partners.

Joint ventures are more likely to be successful if the partners share common goals and objectives and can agree a balanced contribution of investment and expertise from both businesses. It is of course key that they be more effective working together than alone or with another party.

Joint ventures are particularly vulnerable in the early stages and all sides must be prepared to provide as much leadership and support as is needed to ensure the venture succeeds.

Sometimes there will be differences in the business culture or management style that might cause problems, but ideally these should be identified and addressed at an early stage before any enduring arrangement is agreed.

Finally, like any partnership, no joint venture can succeed without mutual trust, good communication, and clear plans and goals.

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