The Possible Pitfalls of Partnerships

Once you decide to take on a partner for your small business or startup, you enter precarious territory. There’s much more opportunity for things to fall apart when you’re sharing ownership of your company with one or more individuals. Before you commit to taking on partners, consider what can go wrong and create a contingency plan.

You Will Disagree

Everyone’s got his or her own idea about how a business should be run. Who gets the final say when you’ve got multiple partners? When it comes to major operational decisions, being in disaccord can seriously fracture your teamwork.

Before you take in a single cent, sit down with your partner(s) and outline who is ultimately responsible for which areas. Perhaps you’re more operationally-minded so you can be the final word on decisions in that realm, while your partner is more financially savvy and can handle those tough decisions. As long as you have roles appropriately outlined in advance, you can cut down on disagreements that can undermine your efforts to achieve company goals.

One Partner May Demand Cash from the Till

What happens if your partner says he’s short on cash one day, and wants to take from the company coffers? Finance should be one of the first areas of discussion with a potential partner, and you should lay down serious rules about compensation and bonuses. It’s never okay for a partner to take money from the company without approval from the other partners.

If you’re not sure how long it will be before the company will be profitable, make that clear up front. You only need a partner who won’t rely on the company revenue for his paycheck until the company can afford to pay partners.

You Handle Crises Differently

Your mode of handling an issue is to bury your head in the sand, while your partner prefers to aggressively deal with it. While you hope your business won’t encounter any major crises, it’s wise to have a plan as to what you will do in specific situations, like being sued, or losing major market share.

Discuss together how you will handle each scenario and which partner will be in charge of moving the company to high ground to wait out the problem.

Your Partner Wants Out

What happens if your partner wants to exit the business, or if he passes away? Does his widow automatically become your new partner? Not addressing this topic early on can provide stressful conversations when they’re wanted the least.

When you create your partnership agreement (and you absolutely need one), make sure to include an exit clause. Outline how much equity a partner can walk away with, as well as any contingencies in case of death.

As long as you start a partnership with plenty of open communication about the most important topics (like the ones above) a partnership can serve to enhance your business and help it grow even faster.

2018-02-23T09:49:34-07:00 November 27th, 2013|Categories: Startup and Launch|Tags: |

About the Author:

Anita Campbell
Anita Campbell serves as CEO and Publisher of Small Business Trends LLC, an award-winning online publication and the premier source of information, breaking news and advice covering issues of key importance to small businesses. Small Business Trends reaches over 2,000,000 small business owners and entrepreneurs monthly. It is one of the most highly-trafficked independent destinations on the Web exclusively focused on small businesses. Anita’s expertise is quoted in places such as the New York Times, Fortune and USA Today, as well as publications from companies such as IBM, American Express and Merrill Lynch. Anita has served on numerous Boards, including the Board of NEOSA (the technology network of COSE, Council of Smaller Enterprises); the Center for eBusiness and Information Technology at the University of Akron College of Business; and NorTech.  She has a B.A. degree from Duquesne University and a J.D. degree from the University of Akron School of Law.  She completed an executive education program at the University of Michigan Business School.

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