When business partners fall out, the owners’ financial well-being, their family’s lifestyle, and even survival of the company are threatened. Fall outs go beyond simple disagreements, which are common in any partnership. Severe repercussions come to light when trust is at stake.
Business partnerships are a popular avenue for organizing a company owned and run by two or more people. Profits and losses, successes and failures, and all the highs and lows are shared between partners. Partnerships look different depending on the situation, ranging from ownership shares, investments, and decision-making abilities.
Whatever the structure, business partners must protect their own interest as well as the interest in the business to ensure a financially stable organization.
Imagine a situation where two partners own a company that assembles and marketed a consumer good. One partner manages the design, marketing, and business development. The other handles assembly and finances. The company has grown but the market is demanding an upgrade the product to continue to compete. The partners now have disagreements on the future of the product design.
The first partner starts to place blame on the failure of the product and his inability to sell it effectively. The second partner pushes back with the additional costs added to the revisions and the reduced margins.
The partners’ pressure on each other continues to mount due to their impasse and the company begins to lose money. They each start to blame each other for the lagging sales and financial losses.
Small business partnerships set up properly can be a mutually beneficial relationship that propels a business forward. However, they can also become complicated and contentious if the partners are not aligned.
To avoid these bad situations, business partners must be on the same page from the very beginning. Here are five things to know before you enter a small business partnership.
- Have different skills than your partner
Ideal business partners compliment your strengths and make up for shortcomings. One partner may be financially savvy while the other is strong at business development.
Different talents and expertise improve your company’s growth potential. The combined talents can offset any deficiencies each partner has while complimenting each other’s strengths. Combining expertise helps to avoid conflict and competition between the partners since each is focused on their respective area of the company.
- Outline your communication styles
Clear, concise communication is critical to a long-lasting business partnership. Some partners may wish to have regular daily check-ins while others prefer a weekly face-to-face meeting. Outlining your communication style and preferences prevents future conflict and confusion.
- Plan to disagree – have contracts in place
In any partnership, conflict will arise. To prevent future problems, partners should specifically lay out job roles and responsibilities. Additionally, decision-making on each area of the business should be clearly defined.
Contracts should be in place to address these questions:
- How will profits be split?
- What is the equity strategy?
- What is the decision-making process?
- What is each partner’s role?
- What happens if the partnership dissolves?
- What will happen if one partner dies, becomes disabled, or decides to leave the business?
- Define your goals for the business
Complications inevitably arise when a company grows. Business partners must share the same long-term vision. Anything short of full alignment risks mounting stress and confusion within the company.
Partners should lay out a clear strategic plan outlining and assigning both strategies and tactics of the business. A business can not be successful if partners are not on the same page.
- Secure the future of the partner, their families, and employees
In business and in life, the most important way to manage and mitigate risk is through insurance. Too often business partners focus on the daily operations of the business while failing to think about the unexpected.
One major threat is the sudden loss of a partner or a key employee. To safeguard against this risk, partners should have a succession plan, buy/sell agreement, and key person insurance in place. When a business outlines an exit plan and buys life insurance under a key person policy, the business will receive the payout in the event of a death or disability.
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