WHEN A PARTNERSHIP SOURS

If you’re going to be an entrepreneur, chances are you’re going to form strategic collaborations with individuals who will become your business partners. No one wishes for anything else worse than a cohesive, mutually-beneficial business relationship, but no mature entrepreneur can avoid the possibility that even in the best of circumstances, regardless of what you do, or don’t, there will be disputes.

Better it is then to have a well-drafted partnership agreement in place, advises a senior in-house attorney and Lauric’s legal strategist- before the lack of one leads into uncharted waters, resulting in a free-for-all situation for all parties.

 

How then, if you’re in a tempest, the partnership’s heading toward certain disaster and you don’t have an agreement?

Evaluate, he advises. Evaluate what the differences really are and if they can be settled. Complex, sometimes obscure issues inevitably surface in all partnerships and will naturally create stress but if business partners evaluate the source of these conflicts and decide to work it out, a stronger partnership can be forged.

Don’t’ be afraid to ask yourselves the sensitive questions.
“What do I/we really want?”
“What is happening in this partnership that has resulted in this?”
“How are those matters affecting the business?”
“What is really happening?”

You might have an answer that points to family dynamics- an issue which has, he agrees, complications beyond the purpose of business itself. But if the issue is about having too much debt or that profit numbers aren’t high enough, or even realizing that your current business model doesn’t work, change the business plan. Adapt accordingly. There might not be a need to break the ship apart. Of course, if your partner is stealing from you or conducting illegal activities via your partnership, then terminate it, no questions asked.

So now both of you decide you’ll work it out. What then?

Check your own risk/reward tolerance level, the principal strategist suggests. “That’s what each partner should do. Assess the risks and rewards associated with your own business and do it frequently to make sure that they’re in check,” which means periodic assessments of your partnership, “especially the partnership agreement.” It also means frequent re-assessments and ongoing, honest communication between the partners. “It’s like any relationship. Over time both parties have to reassess their relationship, like how decisions are made, who makes the decisions, that sort of thing.”

But what about those who decide that they’ll break the ship after all?

What usually happens is either a partner buyout or a sellout to a third party. If a partner buyout is being discussed then it would be required to determine which of the partners has the most passion for the business. Alternately, a partner who is facing an immediate cash need will want to cash out of the business. Decisions will have to be made before a new agreement is drawn up.

“Find a good attorney,” the legal strategist emphasizes. Not your family friend or your uncle. You’ll need someone who is an expert in business law and a good one will help you to dissolute the partnership because by the time you reach this stage, the dominant question will be the actual valuation of the business and it is extremely crucial that both parties have their independent valuations or they agree (at least) on an independent business valuation expert to determine the value of the business.

Terminating a business partnership is never a champagne moment, the principal strategist admits, and more often than not, the collapse tends to haunt all parties throughout the rest of their business voyage, which is why he believes that however serious the issues are, however daunting the skirmishes are, if individuals protect themselves on the onset, they will be better prepared to resolve these issues through good communication and effective negotiation skills.