Q.
What are the most common reasons that business partnerships
fail?
A. Usually, there are disagreements about how money is
spent and
decisions are made. For example, one partner wants to
'grow the business' by reinvesting profits, buying a building
or expanding, while the other wants to 'take money out
of the business.'
Q. What are the signs that people are well-suited to
working together as co-owners of a business?
A. Running
a business is stressful and a key indicator is how
people
react under stress. Signs of a good match include
similar values and work ethic, and the ability to communicate
and resolve issues.
Q. What are the warning signs of a
bad match?
A. Some warning signs that
the partnership may not work are that the partners aren't
working as a team. To get a sense of whether there's
a good fit, I ask a few questions.
My first question is
usually 'What does each partner bring to the table?'
A warning sign is that the partners all want to be 'President';
if they all want to be 'in charge' and can't agree on
roles and responsibilities, a power struggle is ahead.
My
next question is 'Where do you see the company going?'
A warning sign is greatly different answers. If one partner
sees the business 'going public' and the other sees it
as 'closely held' over the long term, there's a fundamental
difference that will cause conflict around many aspects
of the business.
Q. Isn't some conflict normal?
A.
Yes. It's how they resolve differences that's important. Healthy
debate and constructive dialogue are good indicators
that they can work together to resolve the many issues
that will occur.
Q. Is money really the 'bottom
line?'
A. If they can't resolve MONEY
issues in a healthy, mutually respectful manner, I don't
think the relationship will work.
Q. What's the best way
to avoid a bad business partnership?
A. Get to know each
other, especially under stressful circumstances, and
find a way to 'test out' whether the business relationship
will work. When the chips are down, you want to know
how your partner is going to react.
Q. How did you 'test
out' the relationship with your business partner?
A. My
business partner (Iris Shur) and I spent months putting
together our business plan and doing market research
before we committed to invest and launch Tables To Teapots.
We talked a lot about money & work expectations. We
got lost driving in rainy, miserable weather checking
out competitors, had some laughs and shared our fears.
Q.
What convinced you to proceed with the business & the
relationship?
A. It felt like the right
thing to do. In
the end, it comes down to a 'gut & trust' decision.
But, we had done our homework. We had developed a plan,
divided up responsibilities, talked through a ton of
issues and agreed to honor our commitments.
Q. Did you
have a partnership or shareholder agreement?
A. Yes. It's
inevitable that at some point in time (e.g., because
of
death, disability, disagreement), business owners need
to manage a transition of ownership.
Sometimes the transition
is mutually beneficial and sometimes it's not. Laying
the foundation at the beginning of the relationship is
important to achieving a successful outcome.
Iris and
I managed a mutually beneficial transition in selling
our
business, Tables To Teapots, by communicating constantly
and hanging in there through the rough spots.
Q. What
happens when there is no agreement?
A. It can become a
messy divorce. In my law practice, I see the dark side
of business breakups, where the parties dig in to inflexible
positions and become emotional and vindictive. It's much
easier when there's a buy/sell agreement.
Q. So, how can
someone avoid the bad business relationship?
A. You can't
be 100% certain that a relationship will work and the
business will be successful. You can be 100% certain,
however, that the relationship will end. It's as inevitable
as death. So, my advice is 'do your homework' before
you commit, and ALWAYS have an agreement for how you'll
part company.
Jean D. Sifleet
Attorney & CPA
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