Sharing what you earn usually means you share what you lose. In the evolving world of asset recovery, joint ventures certainly follow the previous statement.
They have emerged as a powerful strategy for companies seeking to unlock value from surplus assets. All of this while being able to balance risk and reward.
But how does it work?
By pooling resources, expertise, and networks, partners in a joint venture tackle complex asset recovery projects. These projects are often too risky and large for a single partner or company to face it on their own.
This is why a collaboration ends up being more profitable and a better approach.
Being together transforms the surplus and liquidation project and offers resilience and growth in a market that is always uncertain.
While it does not mean that your wins are guaranteed, your losses will be much less painful as a whole. This also means your actual wins will be slightly shared, but they come with more benefits than disadvantages.
Why Joint Ventures Work in Asset Recovery
All joint ventures are formal partnerships. They can consist of two or more parties as long as they all agree to collaborate under the designated and discussed terms.
The partnership can be for a project, an entire business, and it is usually for a set period. This can vary and many joint ventures come as long-term, but it depends on your needs and how you work through it.
In asset recovery, the way it works is that two surplus companies (or more), or a surplus firm and a manufacturer, join forces to liquidate large inventory. Then, they handle distressed assets and enter new markets with each item.
In this case, the essence and purpose of the entire process is the shared risk and shared reward.
Each partner will contribute capital, knowledge, and access to buyers. However, this also means they will enter the losses and profits line. You lose? They also lose? The same applies with every penny in profits.
While it depends on the agreement, the model offers great results for asset recovery because:
- Resource pooling is possible. As all partners combine their resources and capabilities, projects that are complex become much easier.
- Risk mitigation is in place. you don’t have to be scared of losing a lot and if you do lose, it won’t be in the same degree as the usual or standard margin as if you were alone.
- Access to new markets. This opens doors to new regions and the way you can work on other categories. It is all thanks to how each partner offers their strengths and networks.
How to Structured Joint Ventures
Do you want them to work? always plan and align all elements before making decisions.
Coastal Surplus Solutions understands the importance of all your elements and how you want your venture to work. hence, we offer guidance from our experience and the entire project in the surplus industry.
Key elements to include are:
- Establish clear roles and contributions. Who does what and who manages what? Always be clear about all the responsibilities and the benefits involved.
- Governance and communication need to be effective and transparent. Keep them regular and aligned with the other partners.
- Risk and reward sharing. Establish a system that makes both of you happy. As mentioned by the Lean Construction Blog, ensure that all parties benefit from the venture’s success.
- Exit strategies. Was it for a project or short period? Or maybe it isn’t working with your partner? Plan around it and establish good transitions.
Feel free to contact us to learn more about joint ventures and how we can even be your first partners for it,
