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Bring In a Partner? Part I

One of the most difficult decisions a sole owner of a business can make is on whether to bring in a partner or not. Ask many sole owners if they want to and the answer is “no.” Some have had the experience of having a bad partner or a once successful partnership that went bad. Others just do not want the interference with their control of the business. But others are thinking about it whether for the isolation they feel at the top, or the need for capital or for the chance to bring in a younger person to whom they can sell or transfer the business later on. In this first entry in this series, we’ll look at the things that undermine partnerships-things to avoid:

Divergence of Vision. The partners no longer see or want the same future of the business. They have stopped talking about it and not much progress is made because neither partner wants to do things that support a section of the business with which they do not agree.

Unequal “Skin in the Game”.  Success changes everything. In the beginning, it may seem like a great idea to bring in someone who makes no investment other than their enthusiasm and a particular skill. Worse, they are a friend and working together sounds like a great idea. So one puts up the money to get it started and the other comes along. At some point, the enterprise starts to make a lot of money and dividing up the profits causes problems. 50/50 partnerships where one partner has contributed no investment seem to have the greatest potential for problems.

Lack of clear written agreements. They have no or poorly drafted partnership, operating or buy/sell agreements. There is no agreed upon dispute resolution process, such as mediation or arbitration. In the euphoria of starting, no one wants to think of things going wrong in the future. But things can go wrong and they do.

Come back next week for Part II in this series.

Skills that are not complementary. Partnerships where the partners’ skills are too much alike can be a problem-too many arguments and not enough coverage of the other things that have to be done to manage and grow a business.