Business partnerships can go one of two ways:
They can be one of the most rewarding… or the most difficult business ownership structures.
Partnerships are often formed based on similar interest, vision, and complementary skill sets. This business entity structure can provide great working synergies and enable the creation of a well-rounded company.
But it also carries the potential for conflict. Partners are human and most often possess different personalities, goals, and objectives beyond the business endeavor. The more partners in a business, the more complex the situation. So what is the formula for exiting a partnership without destroying the business, the working relationship, or the friendship? Here are some things to consider for exiting on good terms.
Nothing can take the place of open, honest communication, which is not always easy. Just as in any relationship, good communication can be the key to harmony. It is surprising how many partners never discuss things on a personal level but maintain a purely professional dialogue. While this may work well for a while and in good times, this might not be sufficient when difficulties arise. People change, and life happens. Marriage, divorce, or illness, along with numerous other life events, can alter partners’ goals, objectives, needs, and their relationship to the business.
Nothing can destroy a business faster than discord among partners. Preparing in advance for the unexpected by means of well thought out communication and written documentation can be the key to the survival of the business and the relationship.
It is much easier to be objective when times are good. Once difficulties arise and emotions enter the equation, objectivity and communication can both deteriorate.
Taking advantage of the assistance of trained outside advisors can make the difference. They can maintain objectivity, assist with clarification and problem resolution, and sometimes be the calm voice of reason in a tense situation.
Each partner is an individual. The goals and objectives for one partner, most likely, do not mirror the other. If one partner feels his or her needs are not being met, frustration, resentment, and a communication breakdown can occur.
One partner may be looking for his or her exit path to come from the other partner. This might never have been discussed with the other partner, or the situation may have changed, and this is no longer possible. Each partner needs to have an individual transition plan which is integrated with the other partner’s plans to ensure the business survives and the individual’s goals and objectives are met. One partner may wish to stay with the business for a substantially longer period of time than the other partners creating a stair-stepped transition. Enlisting an unbiased objective advisor who can provide necessary integration is critical.
The untimely death, disability, or illness of a partner can have a devastating effect on the business and your future. Planning for the unexpected can preclude many future problems. Here are some essential steps to take:
- Create a contingency plan for each partner.
- Integrate the individual’s estate plan, along with addressing the potential for divorce, marriage, and other life events.
- Be sure you have an updated buy/sell agreement that is funded. Many agreements are outdated, unfunded, or even non-existent. Assumptions based on incorrect or outdated information can have a devastating effect.
Don’t assume your partner is your succession plan. As we have stated before, the partner may be incapable or unwilling to assume this role. In order for the smooth continuation of the business, a succession plan with depth beyond the partners should be in place. This requires time and the development of a management team to ensure the business will survive.
A partnership, like any business entity, can provide a unique opportunity to create and grow a profitable enterprise. The same is true for exiting the partnership on good terms. It requires thought, planning, communication, preparation, and consideration for the needs of the individual partners. Most often, this is best achieved by working with a trained business transition professional who can provide the necessary guidance, objectivity, and planning capabilities.
Your business, financial future, and relationship with your partner will be the benefactors.