Don’t have a business partner agreement? Invest the time to write one…
This article will give you the four sides of a business break-up in addition to some resources for the legal aspects.
In researching this topic, I couldn’t help but relive the breakup of a business that I was a consultant to for eight years. My other industry before Automotive was Greeting Cards and Publishing.
I spent many years helping companies grow and change in my business called Modern Solutions, and in one particularly painful case, watched a break-up and lived through it with both owners.
I observed firsthand how one owner was clearly done with the business, looking at it purely as a dollars and cents point of view. The other owner was completely attached to the business, the creativity and how much of his life he had poured into the company. The two owners worked with a business psychologist on a weekly basis for months. In the end it went down with a lot of emotional and professional complications, leaving one owner happy to be all done and one owner with a broken heart, a re-mortgaged home and a drained bank account.
The CMO council, a business network organization, says only about 60 percent of partnerships work out successfully long term.
If there is only a handshake agreement it usually means there is no process in place to begin addressing this change.
Judy Shute, well known LSCIW, shared her experience and advice when approaching a possible dissolution of a business partnership.
“In business the advice is always to leave your baggage at the door,” she said. “But few, if any, ever do that. Most people certainly bring their baggage to work and in a partnership you bring two sets of bags.”
If the arrangement isn’t a legal arrangement, it will be more complicated when you start the process of dissolving things. She says the same rules apply as when there’s a divorce. The ground rules have to be set and followed. And like the end of a marriage, once Trust and Respect are gone, the business often gets dirty. Often the two parties get wrapped up in the financial and legal aspects, forgetting the social and emotional aspects.
The Emotional facet is full of questions:
- How did I fail?
- Who is to blame?
- Who did what and why?
- How did I misjudge this?
- What did I miss in the beginning?
- Or, am I strong enough to go through this?
The Social facet isn’t often thought of in the beginning.
- What will I say to my Chamber of Commerce meeting friends, my BNI group, the networking social?
- Who gets the contacts?
- Who brought those contacts?
- What business friends will I lose?
- Who keeps the phone numbers, the website, and the domain name?
- Who keeps the physical space?
These are important issues that cannot be dealt with or sometimes even recognized in a lawyer’s office or a courtroom.
Judy’s recommendation is to be more than fair. What can make the difference between messy and smooth is the use of these four tools: Listening, Diplomacy, Flexibility, and, most of all, RESPECT.
In the emotional aspect is also what happens in case of catastrophes, business failure or unforeseen circumstances. For example, if a partner passed away, is his/her spouse now the partner? This is very real in the mom-and-pop model used in many Automotive businesses. In addition to grief, there will be other emotional challenges.
Ellen Barnes Pfiffner, owner of EBP consulting in Dallas, has some words of wisdom for partners from her own coaching experiences. She has been helping family service businesses for many decades.
She writes that business partnerships end for many reasons. Sometimes a partner wants to retire. For others, an illness or even death ends a partnership. The circumstances for partnership splits are often less dramatic.
Some common situations are:
- Conflicts occur when some someone is wired to have a defined routine/schedule and another prefers to do the work when they feel like it.
- Some personalities enjoy the rush of a startup and now that the garage is established and doing well a partner loses interest.
- The workload has become unbalanced and one of the partners feels like he/she is doing is doing all the heavy lifting and the other partner has all the benefits of the business.
Differing opinions on managing the business. “Lightning rods” for strain include:
- Disagreements on personnel – Staffing, hiring friends and relatives, compensation, grounds for termination, employee training and development and setting the culture of the business.
- Finances – Investment in new equipment and tools, advertising and marketing the garage and/ or adding a new location or retire debt vs. taking money, out of the business, a hard-earned reward for the partners and their families to enjoy life.
- Customer service – Arguments about customer service. A split opinion – Is the customer always right? Or is the customer entitled to free rework or additional work when the garage is clearly at fault?
- Where do the two owners want to go with the business? One may want to push for new technology and the other may just want to ride it out until retirement.
Ellen has helped companies set up Dissolution plans which are essential in resolving/dissolving the partnership.
“Whether your partner is a relative, longtime friend or colleague, it’s a great feeling to find someone you feel you can launch your own business with,” she says. “However, before you go about investing a lot of time and money with this person, it is prudent to have a business lawyer craft a formal business partnership agreement. Legal fees can add up so before you and your partner meet with a lawyer spend time talking about your shared vision for the garage, roles and responsibilities, motivations, expectations, etc. Consult with SCORE or on-line resources that list questions for partnership agreements. A dissolution plan will guide your discussion and actions.”
When a dissolution plan is needed, there are many resources to choose from. Google the term and help is available. The SBA website is always a great resource for any business and the help there is free. They will ask for a documented review of the state of your business. If they have an office near you… even better. They can offer some personal support by extending an appointment. One of their guidelines is “Mediation is better than Litigation.”
Yes, ending a business is like ending a marriage, but it can go more smoothly if you decide on the ultimate goal at the beginning of the process and you use a detailed plan to achieve the end result.
Over the years many partners resolve conflicts just by taking the time to review their partnership agreement; it is their touchstone for success.
Benjamin Franklin’s axiom – “An ounce of prevention is worth a pound of cure” – applies to business partnerships today.
Don’t have a business partner agreement? Invest the time to write one to support your future success.