Pessimistic Thoughts about Partnership Deals
When a cabinetmaker asks for advice on formalizing a partnership arrangement, he receives a lot of warnings about the potential risks and pitfalls. May 22, 2007
Question
I've been a cabinetmaker for some time now, on my own. About a year ago, a friend and I decided to try a partnership. We been at for a year now and are ready to incorporate and put some teeth behind what has been a casual arrangement. We want to document our policies and I was wondering if anyone has any advice. One of the finer points will be compensation relative to time put in.
Forum Responses
(Business and Management Forum)
From contributor H:
If you have been on your own for some time now what did your friend bring into the business a year ago? Remembering what was yours to start with is something you will not want to forget. Partnerships are like marriages - over half of them fail. If it does not work out you don't want to have to buy back your business. Keep a controlling interest of what you have now. Future expansion could be on a dollar for dollar agreement.
From contributor A:
Check with your lawyer about an operating agreement. This is basically an agreement between you and your partner that spells everything out in case of a split. You can use the standard form and fill in the blanks or write your own. This would include how your pay system works, bonuses, vacation time and etc.
Personally I would stay away from hourly wages and go to a salary. The hours always seem to work out evenly over the long run. I have been in a partnership for 3 years now with very few problems. We decided from the onset that he would run the office and I run the shop. This woks great because we can each focus on what we are doing better. I know the failure rate is high but with the right person things can be great. Be sure to cover your bases at the beginning and remember, trust and communication (same as marriage).
From contributor G:
I had a bad experience with one. Either hold over 50% or have your attorney write a buy/sell clause in the agreement. That clause basically states that if you make a formal offer to buy out your partner then he has the right to buy you out for the same amount or is forced to accept your offer. If things don't work out you have a way to sell or buy at a fixed price with no legal hassles.
From contributor B:
Absolutely draw up a concrete buy/sell agreement. Draw up another agreement that spells out the duties of each partner. Do not do a 50/50. Someone needs to be the boss. Do not assume that the relationship will remain the same, it will not. Do not assume that the scope and direction of the business will remain the same, it will not. There is a lot of info on the web about such things. Talk to a business attorney, and be careful.
From contributor J:
No written agreement, regardless of it's scope, can anticipate the changes in your relationship that will inevitably occur. When my former partner and I first met with the attorney to form the partnership he said, "This is the best meeting you will have. It will get worse from here." He was right, and I wish I'd never done it. Be careful!
From contributor K:
Why partner? You are looking for someone to balance your weakness in exchange for efforts you make to compensate for theirs. Wow, that is cynical. The question remains, why partner? I want to grow a business. I want the business and its people to thrive. I want personal financial success. What will a partner bring to this that an employee won't? I am not fool enough to think a human relationship can be fifty/fifty. I am married and happy in the marriage but I was also once divorced. I was happy in that marriage also. The equilibrium of marriage spiraled into a wreck with amazing speed. What makes me think a partnership position would be any better. At least this culture has divorce court to salvage the wrecked lives in a wrecked marriage. Where do wrecked partners go for solace?
