Breakups are hard. Even ones that are smooth, well planned and everyone behaves, business partner breakups are emotionally draining. For those that aren’t as smooth (and are more common), breakups can be devastating to the business, your finances, emotional health, and relationships.
Over the past two and a half years, I’ve helped 15 business owners separate from their partners. That’s an average of one every other month! Some of those have been smooth, and some of them have been messy. But every single one of them has been time-consuming and costly.
What’s the lesson here? There are several.
First, for those of you who are thinking about going into business with someone, there’s homework you need to do first.
Second, for those of you who are already in business with someone, there are actions you can take now that will (1) make your relationship stronger, AND (2) make it easier should either of you decide to separate.
Before we dive into those steps, let’s consider the top reasons why someone wants a business partner. A potential business partner can be attractive if he or she has:
1. Additional capital (money $$) to start or expand the business.
2. Shared responsibility for running or growing the business.
3. Expertise in an area needed to run the business.
4. Experience operating in a particular industry.
People often think money is the number one reason people consider a business partner and that is probably correct. But a close second is the shared responsibility – the additional shoulders to carry the burden and effort of creating and growing a business. It’s this reason that turns out to be the most important one for small service-based businesses.
Of the 15 clients we helped separate in the past two and a half years, here’s a breakdown of the reasons they broke up:
Lack of dedication, responsibility, and/or commitment = 9 Businesses broke up
Lack of trust and money disagreements = 5 Businesses broke up
Lack of agreement over decision making = 1 Business broke up
As you can see, the statistics show that the number one reason business partners break up is a lack of effort. And when you think about it, that makes sense, right? Service businesses need people to put in the time and effort to make the business succeed. When you have a business partner who doesn’t pull their weight, you can easily imagine how that would cause problems.
Of the 15 business owners we helped separate from their business partners, only 5 had partner agreements in place. For those 5, it was definitely an easier process. Don’t get me wrong, it was still a difficult process, but not as difficult as it could have been had there been no agreement in place already.
For the 10 business owners who didn’t have a partnership agreement in place, it was more expensive, more time-consuming, and much more miserable.
So here are the action steps that you should take if you’re in this situation:
1. If you’re thinking about going into business with someone, make sure they’re the right person.Not just with money but with dedication and commitment. You don’t want to be the only one working while the other is taking it easy. Have the hard conversations. Make sure it’s the right fit before you make the jump into partnership.
2. Have an agreement in place that outlines several key issues: decision-making, money investment, effort and time commitment, separation process, and several other key provisions. Having an agreement in place actually gives you two benefits. First, it makes you think about the issues and discuss them in order to put the agreement in place. Second, it is there as a security net in case you need it.
3. Once you have an agreement in place, don’t forget about it. Follow it. Let it do its job by keeping some structure around your partnership.
At the end of the day, we are all humans. We feel and think differently each day. Our life circumstances change and our priorities change. What may be a certain way today may not be that way next week. Keep this in mind when you structure your partnership agreement.
Not one of our 15 business owners thought that they’d end up in a partnership split. Every single one of them went into the partnership thinking it was the best decision and that it would work out to their benefit. None of them thought it would end the way it did. Some of them had to shut down their businesses. Some of them had to pay their partner a lot of money. Some of them had to pay their attorney a lot of money.
Optimism is the entrepreneur’s best feature. But it should always be coupled with practicality. With business partners, it’s practical to have a written partnership agreement in place from the beginning.
Information in this journal post is for general informational purposes only. Nothing in this journal post should be taken as legal advice for your individual situation. Viewing of this journal post and/or contacting us does not create an attorney-client relationship. Please do not send confidential information to us until an attorney-client relationship has been established.
