What to do if you have a partnership breakup
It’s been said that a business partnership is a lot like a marriage, and the comparison holds true when things go awry: a partnership breakup is a lot like divorce.
Lawyers will be involved and assets will need to be divided. However, a separation need not be overly dramatic or unnecessarily painful.
These tips can help make separation easier – and more amicable – should you and your fellow business owners have a partnership breakup.
Reduce the risks
Business partners should take steps to safeguard their companies at the very beginning with a dissolution strategy. This is a kind of pre-nuptial arrangement for a business.
At the time you draft your partnership agreement, include an exit strategy that outlines what will happen if the business relationship dissolves. For the protection of all parties, it’s essential you get the terms of your agreement in writing.
Understanding each of your roles and responsibilities up front – and how you’ll handle conflict and disagreements – will go a long way to avoiding misunderstandings and tensions that can lead to a breakdown.
What to include in a partnership agreement
To avoid conflicts that can escalate and quickly feel unresolvable, your partnership agreement should answer these key questions:
- What will be the financial investment of each partner?
- How will major decisions be made?
- What will be the division of work?
- Who will be responsible for which aspects of the business (e.g. hiring, strategic planning, financial oversight, contractual agreements, etc.)
- What will each partner earn?
- How will disputes be resolved?
- What happens if a partner can no longer continue (e.g. for personal or health reasons)?
- What are the terms of a buyout agreement?
- How would a business sale be handled?
Ideally, if the business goes through a rough patch your partnership agreement will guide clear decision making – and avoid small problems becoming irreconcilable differences.
Seek professional advice
Accountants, corporate lawyers, and other business professionals are there to provide advice and clarify the best path forward when you find yourself in a business dispute.
Including them in your discussions early is a positive step toward resolution. It does not necessarily indicate in an impasse that you’ve reached the point of no return.
Look to business professionals with the mindset of helping each partner protect their rights, assets, and investments. The goal of seeking advice is to find a fair solution for everyone involved and ideally, a mutually agreeable solution to any dispute.
Make a clean break
If compromise isn’t possible, the only solution may be dissolution. In this case, it’s best to announce your decision and to take steps to move on as quickly as possible.
Understand that a clean break isn’t about getting everything you want or think you deserve when a partnership ends.
The idea is to cut ties quickly, with minimal upheaval for the surviving business and for each party. This is so everyone can take the next step forward without a long and costly separation process.
The unfortunate truth is that a partnership breakup inevitably means loss. This may be the loss of a dream, the loss of income, or the loss of a friendship.
Because each partner has invested so much in the business – personally, financially, and professionally – feelings will run high should things fall apart.
In order to avoid making a bad situation worse, make it a rule for everyone involved to communicate only when calm enough to make good decisions for the business and all parties involved.
Stick to this rule and your pre-made agreement, and you may just be able to salvage the relationships involved, if not the business itself.