Entering a joint venture is a complex, and sometimes, time consuming process. As any type business structure, it holds a good opportunity for anyone to grow and make money fast; but just like any other business type, joint venture also holds threat to anyone who wants to enter. Discussed below are the advantages and disadvantages of entering a joint venture.
Advantages of Entering a Joint Venture:
Accessing additional financial resources – Asset sharing is one of the best advantages about joint venture. Since, you are able to use larger funds to facilitate the production and operation of projects and products, you facilitate growth. In other words, you increase profit margin and increase your revenue potential.
Sharing the economic risk with co-venturer – It pays to have someone sharing the responsibility with you in case you end up in deep troubles. This is also true with joint venture. Since you are sharing assets, the risk of losing a great deal of money is divided to both parties.
Widening economic scope fast Building reputation is often difficult, not to mention time consuming and expansive. At a joint venture, you are able to widen your economic scope without spending too much money and waiting for a long time.
Tapping newer methods, technology, and approach you do not have In order to grow and expand, you need resources in the forms of methods, technology, and approach. For that matter, it would help a lot if you will be able to partner with an entity that presently has the things you dont and the things you need. Joint venture opens up the venue for such need.
Building relationship with vital contacts Aside from economic territory, another advantage of joint venture is the ability to give you business relationships with vital contacts. This is just like automatically befriending your partner’s influential friend that can give you access to lots of things such as business opportunities and a pass to vital information.
Disadvantages of Entering a Joint Venture:
Shared profit Since you share assets, you also share the profit. The profit of both parties usually depends on the size of the share to the venture or may be defined on the agreement.
Diminished control over some important matters – Operational control and decision making are sometimes compromised in joint ventures. Since there is an agreement that divides which one will take over a particular operation, the other may not be satisfied with how the things are worked out with another. This leads us to another disadvantage of a joint venture…
Undesired outcome of the quality of the product or project Since one party may not have control on the supervision of the production or the execution of one part of the system, this can happen. This often leads to disputes and lawsuits. To avoid this, both parties agree on specific details about the whole operation process.
Uncontrolled or unmonitored increase in the operating cost Again, defined control over the operation may lead to this disadvantage. It is important therefore to make sure that all things are clarified on the paper before singing in the joint venture agreement.
Making money by entering a joint venture is easy provided that you know exactly what you are doing. With these advantages and disadvantages presented, you are clearly aware of the things that await you.