Everyone knows it’s tough out there right now and business owners are feeling stressed out.   It’s particularly difficult on partnerships when two people have to work together. The stress at home and from the office start to boil over.  In the last two days I have been called in by financial planners to assist a business owner who is fed up with his business partner.  The stress of the cash flow, personal credit, work ethic, ego, pride, etc. is pushing business partnerships to their limits.  I’ve always considered partnerships a risky business practice because two people might start with the same end in mind but realize that time changes everything.  I tell the business owners it’s like a marriage, and for better or for worse you need to learn to work it out.

I hear the divorce rate in marriage is above 50% these days and I would bet the same trend follows in the business world.  What I see now is that when the going gets tough, someone get’s going.  In both of my current client… situations the businesses are doing well right now, not as well as before, but profitable and are not in a negative financial situation.  The reason why they want out is because they can’t stand each other anymore.  Everyone is a little tightly strung right now; small things are blown up to big disasters and everyone has a much shorter temper.  Before you decide to mentally check out of your partnership, please consider a few things:

First, consider your partnership separation a divorce. Go in with the mindset that when you discuss this with your partner they will get mad.  At least with this expectation you won’t be blindsided when you get your head ripped off after you offer your partner some money to leave.   They will feel hurt, angry, scared, and unsure, but it usually converts to defensiveness.

Second, be prepared to leave yourself.  You might want to buy your partner out but often times the response is.. “If you want to end this, then you leave.”  In my experience, the partner who is being ousted will often fight for their job, and fight hard. If you are 50/50 owner and they don’t want to leave, you should be prepared to leave yourself.

Third, the separation process can go as quickly as 30 days, if you are both in agreement and happy with the split up, or it can take years and court hearings to legally separate you.   Most splits have fallen in between those extremes, but you will need some type of professional assistance to mediate the process.  The more you can work out with your partner, the better, because then it will result in less money going to lawyers to fight it out. No one wins when the lawyers show up.

Fourth, the value of a business split in half is not 50% of the appraised value.  Let me try to say this in another way. Just because the business has a value of $500,000, when the partnership is split-up, the remaining value is less than $250,000 since the assets, the goodwill, the cash flow, and the debt have all been changed.  Another way of looking at it is when you consider buying a brand new car worth $30,000 sitting on the lot.  The car is clean, running, and all ready to go for that $30k.  Now take off the tires, the seats, and the doors. Deduct the cost for those items and now the value of that stripped car is less than the cost of the parts removed. 

Fifth and final, a partnership break up is rarely a win win situation.  It is an emotional process between two people who have trusted and relied on each other until now… it’s over.  No one likes change and regardless of whether you start with your best intentions, be prepared for it to get ugly.  Hopefully it won’t, and you will be one of the few lucky people. So go in with your eyes open, get professional help, and you won’t be disappointed.

This entry was posted on Saturday, April 25th, 2009 at 3:00 am and is filed under Professional Advice, Exit and Answers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.