Business Partners, People, Planning

Breaking Up is Hard To Do

Even when they are successful, partnerships aren’t easy.

Nearly half of all marriages end in divorce and those relationships are between two people that presumably love each other. Business partnerships don’t usually involve people in love, so it’s no surprise that those relationships can go bad so quickly and irreparably.
So what can you do to protect yourself when the partnership for your small business goes bad?

The best way to avoid a bad business partnership is by protecting yourself BEFORE it starts by not getting into one, because once your partnership turns bad, your options are limited.

If you end up in a business partnership anyway, here are some things to think about.

Both you and your partner need to seriously consider all decisions beforehand and create a detailed operating agreement. This should be the source to turn to when you and your partner have issues that can’t be easily settled. Don’t think that because you’re friends it wont happen. We all know that strange things can happen when there’s money involved.

Once you’re in the partnership, if you don’t have an agreement that spells out how to handle issues, you may be in serious trouble.

You can’t simply ask your partner to go away or vote them off the business like a reality show. You will have to continue working with them or buy them out of their piece of the business if things go sour. Both of those situations can be impossible to deal with, so spelling out any and all eventualities ahead of time is key.

Remember, a partnership is a legal engagement and if you are partnering with someone who doesn’t pull their weight or fulfill their end of the bargain, you may have little to no recourse. You could end up spending months in court, suffering financially, losing your small or medium sized business, or worse.

If you’re already in a partnership, don’t have any written agreement with your partner and things are going downhill, what can you do?

Your goal should be to negotiate some sort of compromise with your partner. After all, they are in virtually the same position you’re in and will probably want to get out as well.

Start by talking to your partner, who may also be unhappy and looking for a way out. If leaving isn’t an option for either of you, you may want to think about restructuring the business to better reflect the work each of you do.

The simplest thing to do is to buyout the other owner, but there are some issues with that strategy. Buyouts can destroy your cash flow and those that leave, at times do so with valuable assets, leaving the business short-handed for a time.

And if you don’t have a buy-sell agreement in place, an angry partner can demand that a court set the price the business will be sold at. A judge can even order partners to stay together, even if both want out.

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