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What to do if you fall out with your business partners

Business PartnershipA business partnership can be a lot like a marriage, and the comparison holds true when things go pear shaped when the end of a partnership can feel a lot like divorce. And generally not in an amicable way.

When business partners fall out, the consequences can be quite drastic.  It will be stressful, friendships will be tested (and some will end) and you will start to question why you ever thought it would be a good idea.

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 your business partnership come to an end.

Reduce the risks

Business partners should take steps to safeguard their interest at the very beginning with a dissolution strategy – 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 your own protection, it is essential you get the terms of your agreement in writing. And preferably do this before you enter into any business with anyone.

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.

To avoid conflicts that can escalate and quickly feel unresolvable, your partnership agreement should consider some or if not all, of 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 take the emotion out and guide clear decision making to 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 an independent advisor in your discussions early is a positive step toward resolution and not necessarily indicative 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 – so everyone can take the next step forward without a long and costly separation process.  Generally the longer the process takes, the more angst it brings and the less financial rewards there are to share in the dissolution process.

“The unfortunate truth is that the end of a partnership can inevitably result in loss, whether it’s the loss of a dream, the loss of income, or the loss of a friendship.”

Generally, as 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, communication around business decisions needs to be made in a rational way, so keeping calm and organised at the start of the business venture will hold you in good stead throughout your business relationship.

Stick to this rule, implement a water tight agreement with your business partner fromt he get go, and you may just be able to salvage the relationships involved, if not the business itself.