Avoiding “I Hate My Business Partner”
How To Avoid Common Issues In Business Partnerships
Today it’ll happen again.
Today I’ll spend more time sorting out a business partnership dispute. It’s something I do almost every day at my law firm.
Today a client will owe me more money so they can sort out what they once thought was a happy business marriage.
I’d rather be working with a client to plan a new partnership the right way. One built to lesson the chances of an ugly end. One with a better chance of success.
So how do we avoid having partners call their lawyer and saying “I hate my business partner” so that they can instead call and say “I need your help with our growth”?
Well, let me show you what years of experience have shown me. They are lessons you can use today to make your next partnership stronger. Or to sure up the one you already have.
It Starts With Communication
One of the fundamental tenets of partnership is being partners. Being in something together.
Many times when partners contact me after they have a problem what do I find? I find the partners didn’t start with communication. Instead they started with miscommunication.
Often one partner is thinking about this while the other partner is thinking about that. But their communications are sufficiently vague that the two believe they are actually talking to each other about the same thing. And this leads to problems down the road.
So if you want a partnership without issues you need a lot of communication about goals, dreams and wants and needs. And these discussions need to extend beyond the business itself — because the things you want in your personal life will have an impact on the business too.
So how do you structure this communication to maximize effectiveness? Let’s get to that.
In almost all cases it is very easy to get to the root of what each partner wants from the partnership. But it usually needs some facilitation or exercises to get it there.
There are two tasks I typically have partners do when they come to my office excited about the future but not as detailed about how they’ll work together.
Task One: Contributions and needs. I have the would-be partners (this can work for two, or more, partners) make a sheet divided in half vertically. One the left side I have them write when they will contribute to the partnership. On the right side I have the would be partners write down what they require from the partnership. This might include things like pay, ownership and job titles.
As you can see, this can be a big eye-opener. Often the mere fact that each party wrote down what they wanted forces a conversation that leads to a stronger foundation for a partnership.
Task Two: What Ifs. The next task for would-be partners is to write down short essays on what-ifs. What if one partner dies? What if one partner gets divorced? What if the business does well? What if the business struggles?
The essays help for two big reasons. First they force the partners to think through the potential for issues. Also, when the essays are exchanged between partners, they force the partners to think about whether they are happy with the answers of their partners.
Communication can be hard especially on tricky and sensitive topics. We’ve found these exercises force communication to be opened up.
Explore All Possibilities
When we trace back through troubled or failed partnerships what we find is that most of the time the partners did not consider all of the possibilities. There was no discussion of “what if” the thing that happened happened.
For instance many partnerships get in trouble when sales are weaker than expected. This is a situation which can be anticipated and discussed well in advance. But when it’s not discussed, in advance, the partners end up with more pressure on them, and perhaps new views on the business.
So it’s critical that partners explore all foreseeable possibilities for the partnership before the partnership starts. Work through the issues before the pressure is on.
Don’t Be Afraid of Third Party Help
Many of my best clients are second and third time partners. They’ve been in a partnership before (some didn’t end well) and they want to get it right this time.
Bringing in a lawyer, mediator, or other third party to facilitate discussion usually helps bring out issues, work through sticky issues, and makes things go faster. There are just some thorny or sensitive issues that a third party can bring out that the partners can’t sensitively bring up to one another. For instance, I can ask about parties abilities to finance the partnership operations in the even of a downturn in business while one partner might be hesitant to ask the other about their finances (or lack thereof).
While it might seem costly to get others involved in the formation stage of the business it is usually the right thing to do. So many issues can be avoided early on with the right planning and an outside, objective opinion on things can make all the difference.
Anyone that has been through the cost and mess of a partnership break-up will tell you a little money upfront to get the right foundation can be huge in the future.
Once the agreement is reached the parties should document the business deal in the form of a partnership agreement. The term “partnership agreement” can, in real life, mean a variety of different documents. But the key is there should be documents around how the partnership works, they should be drafted by a lawyer and they should hold the parties to their agreement, legally.
Documenting the business deal among the partners usually is of great benefit. Not only does it legally bind the parties (if the documents are done correctly) but it also causes the parties to think through issues. Often the mere process of reducing everything to writing means that the parties have to think long and hard about the details.
It also will force the discussion of details that seem to never surface in oral discussions about the partnership such as what each partner can do without talking to the other partners. While partners might discuss that one partner will do this and the other that rarely do they make lists of just how much each partner can do independently without talking to others.
Issues like non-competes, buy-outs and disagreements can also be documented. These are issues that are also often rarely discussed until the discipline of doing a written agreement introduced.
So get the partnership agreement in writing and discuss and negotiate those difficult terms.
Revisit The Agreement
No partnership agreement is static. The world will change. The business environment will change. The needs of the partners will change.
Regardless of what happens over time your partnership agreement will need updating in light of new facts. So plan to revisit your partnership agreement from time to time and update it. Know that having the discussions around updates and changes will strengthen the foundation of your business.
What are your thoughts on partnership agreements? Have you been in partnerships? Did they turn out good or bad?
Join me in the comments below so we can discuss.
By: The Our Shawn McBride, is the man you call when you want a keynote, training or a consultant to get your business ready for The Future of Business. He’s the host of The Future Done Right(TM) Show and a long-time business attorney. If you want regular content on the future of business subscribe to get new blog posts from us here.
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