Averting Problems with your Partners
Partnerships can be problematic. Disagreements erupt over money, clients, scheduling, hiring decisions and even parking privileges. In fact, it’s often the little things that lead to big problems, catapulting partners from a congenial working relationship into one of conflict and chaos. Problems are inevitable, and most experts agree the best partners are those who plan for them in advance. The way to solve future disagreements is to have a strategy in place before problems occur and to evaluate your potential partner long before you make any agreements to work together.
In this Quick-Read you will find:
- Criteria to consider when choosing a partner.
- Prevention tactics to implement before problems ever occur.
- Steps to take when partnership problems do arise.
SOLUTION [top]
Partnerships are often formed on a handshake between friends — setting the stage for major problems in the future. Friends and family members don’t necessarily make the best partners, and if care isn’t taken in the beginning, the alliance can doom both the business and the relationship.
How to Choose a Partner
Have serious discussions long before you agree to form a partnership. What expertise does the prospective partner bring to the relationship? What are this person’s objectives and goals? What is his or her work ethic? Do you and your prospective partner appear to be compatible on these points?
Partners who are well-suited will bring different skills to the business, thus complementing each other’s expertise, expanding both their knowledge base and business potential. But they will also have a shared vision and many shared values.
Talk about your goals. If your objective is to establish a stable, growing company while your partner’s goal is to make a lot of money and sell the business in five years, the partnership is not a good idea. If you want to run a family-friendly business that respects time with your spouse and kids, and your partner thinks family is a distraction, keep your distance. Be open and honest: if you’re uncomfortable talking these things over with a prospective partner, consider this an indication that you should beware.
If you are a sole proprietor considering taking on a partner to get capital or new skills for your company, be sure to analyze other business-form options, especially limited partnerships, limited liability partnerships and limited liability limited partnerships. If you already are in a partnership, consider switching.
How to Forestall Problems
- Communicate before forming a partnership. Talk about goals, vision and values. Openness and honesty are important here. Do you respect the ideas and values of the prospective partner? What expertise does each of you bring to the partnership?
- Put it in writing. No matter how close you are as friends, always involve a lawyer when drawing up a formal partnership agreement — verbal agreements and handshakes leave room for trouble. Be sure the agreement specifies how the business will be appraised and how a departing partner (or heirs or divorcing spouse) will be compensated.
- Prepare an exit strategy. Have a plan in place before the problems arise, so that all involved parties understand what the process is and what their responsibilities are if they opt out.
- Choose an independent arbitrator. Arguments can reach deadlock in two-person partnerships. Before establishing the partnership, choose an outside individual — someone you both trust — who will cast the deciding vote in stalled office issues.
Steps to Take When Problems Arise
- Communicate. Talk through the disagreement and consider the solutions that will move you closer to your ultimate business objective.
- Mediate. If one-on-one discussions aren’t getting you closer to resolution, call in a professional. The Quick-Read “Don’t Litigate: Mediate!” provides guidance and links to sources of mediators.
- Forgive. When problems arise, work through them, respect the outcome even if things didn’t go your way, and move on. Resentment can hurt your business and the bottom line.
- Stay focused. You may not always agree, but the main goal of partners is to make the business succeed. If the solution offered is in line with your shared business goals, don’t fight it.
- Leave. Know when to quit but also know how to quit. Exit strategies drafted at the inception of the partnership are critical for making this process fair and smooth for all parties concerned.
REAL-LIFE EXAMPLE [top]
When Carol Studenmund and Robin Nodland formed LNS Court Reporting and LNS Captioning in Portland, Ore., they had already prepared for the worst. In an effort to avoid future problems they discussed exit strategies, office responsibilities and business objectives before they opened their business. Later, when problems developed with a third partner, the exit strategy was already in place. The partner left, and business continued.
“There wasn’t total chaos,” Studenmund said. “We had the steps in mind, and we knew what we had to do. In the beginning things are good, but things happen, lives change, problems can arise. You need to expect it and have a plan for it.”
Studenmund says part of the success of her 13-year partnership with Nodland is because of their shared objectives and values. There is also a mutual respect and trust. The two talk frequently and resolve disagreements by choosing the option that will best keep the business on track. Sometimes that means letting go of personal feelings and preferences.
And while both Studenmund and Nodland are good friends, they rarely socialize outside of work. It makes for a better friendship and partnership to keep the two lives separate, Studenmund said.
DO IT [top]
- Sit down with your partner or prospective partner and discuss business objectives and goals, and plan how to achieve them. If you’re already in a partnership, use this exercise to enhance your level of communication and to ensure that you are both making decisions based on what is best for the company. If you are considering entering into a partnership, evaluate the discussion to determine whether you have shared visions and values regarding the business.
- Develop a partnership agreement or revisit the one you’ve established. Does it include an exit strategy? Make sure the proper papers are filed before problems erupt. This could minimize conflict and chaos in the future.
- Before any disputes occur, pick an independent third party to mediate or arbitrate them. Regardless of which stage you are at in your partnership, an objective individual, whom you all trust, can have valuable insight or help settle disagreements that have become deadlocked.
RESOURCES [top]
Books
Partnership Book: How to Write a Partnership Agreement, 6th edition, by Denis Clifford and Ralph E. Warner (Nolo.com, 2000). Chapter 6, “Partnership Disputes: Mediation and Arbitration,” suggests wording for the partnership agreement. If you have a partnership disagreement but don’t have such a contract for guidance, consider using these guidelines anyway.
Let’s Go Into Business Together: 8 Secrets to Successful Business Partnering, Revised edition, by Azriela L. Jaffe (Career, 2001).
Teaming Up: The Small Business Guide to Collaborating with Others to Boost Your Earnings and Expand Your Horizons by Paul and Sarah Edwards and Rick Benzel (Jeremy P. Tarcher/Putnam, 1997).
Internet Sites
How to Determine the Legal Structure of Your Business
How to Expand Your Business with Partners and Investors
Article Contributors
Writer: Polly Campbell
Dr. Robert Sullivan, an adviser to small businesses, was interviewed for this Quick-Read. Carol Studenmund, co-owner of LNS Caption and LNS Court Reporting, was interviewed for this Quick-Read.