We work with a lot of partnerships. Some of these are team members and office colleagues. Often, they are friends who want to work together because each brings something unique and useful to the partnership.
There have been many brilliant partnerships (think Steve Jobs/Steve Wozniak/Ronald Wayne, at Apple; or Larry Page and Sergey Brin, at Google; even Fred Astaire and Ginger Rogers; and Laurel and Hardy!). However, whether it’s a family relationship or not, partnerships come with both blessings and issues. If you are already in a partnership or just considering the move, here is some advice we’ve learned firsthand over our decades of experience.
Make sure goals align.
In case one partner describes the one location business they currently owned as having additional square footage and better operating procedures. The other describes a 100-location franchise operation. Here’s how to act when this happens to you:
Communicate openly and honestly
Set written goals at least annually
At the beginning, consider the end
While you’re forming your partnership, think about how you will unravel the business when the time comes — and it will, in scenarios like these:
One partner wants to sell and the other doesn’t.
Whether it is because of age, desire or a myriad of other reasons, one partner may decide it is time to get out, while the other wants to continue in the business. For instance, we know of a company where one partner is 25 years older than the other.
Within the next 10 years, the older partner will want to start unwinding his holdings in preparation for retirement. Unfortunately, the partners haven’t discussed how this will happen. How will they value the company? How will the business afford to pay the partner who wants to sell? If possible, while the partnership is amicable, we believe the partners should make these decisions.
A partner dies.
Are you prepared if your partner dies? First, the business may suffer some degree of trauma due to its losing one of its principals. However, unless you have made provisions in advance, you, as the remaining partner, will inherit one or more new “partners.” Specifically, the heirs of the deceased partner will own his/her shares. If you don’t want to be in business with your partner’s spouse and/or kids, you should look into key man insurance or put other provisions into your partnership agreement.
Both partners are ready to retire or want to sell the business.
This is the easiest situation. Both partners agree that it is time to sell. However, there can still be complications if one partner wants to sell his/her shares to a family member or to key employees while the other partner has different plans. Again, make sure that you know how you will value the business in order to ensure that the sale is fair to all.
Know how you will negotiate tough decisions.
All partners eventually face disagreements. When this happens to you, how will you decide? In 50/50 partnerships, disagreements can be difficult, especially if both partners feel strongly about going in different directions. We worked briefly with 50/50 partners who had a history of butting heads. We worked with them through a couple of their battles.
However, in the end, they came to an impasse and decided the only way out was to sell the company. This might have been avoided had they predetermined a tie-breaking mechanism — while the relationship was still amicable.