Partnerships - Made in Heaven?

In my post, Do YOU Have What It Takes?, I stated that I would be talking about Business Partnerships in a future post. Well, that time has come!



Why should you start a partnership? What should you look for in a partnership? Who is the ideal partner? How do you sever a partnership?

There have been many successful business partnerships (just think of Marks & Spencer) and being in a partnership has its advantages:
differing strengths and skills
spreading the financial burden
spreading the risks
moral support
stronger business "clout"
but sometimes partnerships can go wrong for a whole host of reasons so, if you are embarking on a partnership, think about it very carefully.

Most sole trader partnerships start through friendship or a common interest. It could be that you were at art school together, you are related, she/he's your best friend - but, quite frankly, this is not the best reason to go into partnership and can end in tears (yours probably). After the initial euphoria of "Yay! We're going to make lots of money and be a success" then cracks in friendships and relationships begin to show. Most reasons are:
one of you is doing all the work
you both have very different ideas of how the business should be run
you share the same strengths and the same weaknesses
you are sick of seeing each other
you are too competitive with each other

"My first business partnership was with my next door neighbour - we made salt dough and had "parties" a friends' houses, selling wall plaques and christmas decorations. Our biggest seller was our 'bride and groom' wall plaque which we made to order, copying the outfits that the couple wore on their big day. It was fun making the salt dough and selling it and, although we were only making pin money, it gave us something else to talk about rather than just the kids.
"We had a break from salt dough but then a huge christmas fair was looming and our stocks had dwindled. My partner/neighbour reminded me of this but I was pig-sick of making Little Bo-Peeps and Three Little Pigs and my response was "I NEVER want to see another piece of salt dough again"! Fortunately, she felt exactly the same so we called it a day very amicably". Janet.

That was a easy enough arrangement to get out of. The partners hadn't made any huge financial or emotional commitment, one wasn't more successful than the other, there was no resentment built up in the relationship. But, if you are already committed to starting a partnership with a friend or relation does it stand up to the following checklist?
You both have the same vision or goals
you both put in the same commitment in time
you both have defined roles
your partner will bring different strengths to the partnership
you have worked out the financial commitment of each partner
you have regular meetings to plan and catch-up
you have agreed time apart.

The best arrangement is the water tight arrangement or partnership agreement. This document, drawn up together, will iron out some of the issues/problems that will rear their heads at crucial moments. Your agreement should include the following:
Defined roles and reponsibilities
Record of accounts and financial input
Profit sharing
Tax commitments
Liability
Reporting Back
Dispute Resolution
Termination of Partnership
It all sounds rather complicated - after all, you were only planning on making and selling your art together. Why should you bother with all this? Well let me break it down.
Roles and Responsibilities.
Write a list of your strengths and weaknesses. Who's the financial wizard? Who has the interpersonal skills? Who is the computer whizz-kid? Who has the most "connections"? You might both be really good at something and not at something else. How will you plug that skills gap?
Recording Accounts and Financial Input.
Who has overall responsibility for balancing the books? You can agree to keep your accounts separately or one person keeps them or one does the petty cash and one the budget.
Profit sharing.
Whether you are both putting up 50% of the money into your business or a 30% - 70% split you will need to agree the financial split of profits. Let's say, for example, you are both printing hand made scarves and bags using your screen printing equipment in your studio - you would not expect to share the profits on sales 50-50. You need to agree the share of profits, in writing, before you go into production.
Tax Commitments.
We all need to pay them. Make sure you have both registered with the tax office before you embark on your partnership. State in the Partnership Agreement that you are responsible for YOU OWN tax debt and not your partner's.
Liability.
In the UK creditors can claim your personal assets if your partner runs up any debts - even if you didn't know about them. You both have equal responsibility to the debt, no matter how unequal your financial contribution has been. (Don't go into partnership with a bankrupt or someone who has known debts, no matter how much you like them).
Reporting Back.
Agree to regular meetings in your Partnership Agreement. Whether this is monthly or weekly, make a commitment to meet up on paper. You can agree to have two kinds of meeting: a Planning Meeting and a Financial Update Meeting. The Planning Meeting to discuss what you are going to achieve in the following week/month/year, what needs doing, what problems you have had, whether you are meeting your achievements or goals. The Financial Meeting is so that you both know what your financial situation is, what you have spent, what you need to spend, profit/loss. Even if only one of you is keeping the accounts you both need to understand them and share this information. If the tax man comes calling ignorance is no defence.
Dispute Resolution.
Those niggling little tensions are building - they need to be resolved BEFORE they become a torrent of accusations adn recriminations "you ALWAYS do so and so" or "you NEVER do so and so". By writing a Dispute Resolution you are stating that every effort will be made to resolve conflicts within the partnership.
Termination of Partnership.
Before you even start a partnership you need to decide how it will end. you might agree that a partnership can be wound up at any time and that either party can terminate the agreement. Or you may need to set out a timetable of, say, a month or after all financial commitments have ben paid back.

Once you have drafted the partnership agreement find someone to check it for you. This may be a solicitor or business adviser, either at your bank or at your local small business centre. Then you both need to sign and date it and keep a copy each.

"I was selling art at local shows and fairs when I met another artist who I got on really well with. Her work was very similar to mine and we decided to exhibit together and run workshops too.
"The partnership worked well at the beginning. I learned a lot about selling from her (she could sell snow to eskimos) and she was very ambitious with her business - she made anything seem possible. But there were niggling irritations on both sides - I sometimes resented her success and how she "took over", she resented my children coming to shows and that family life stopped me from committing fully to our partnership.
"I am not a risk taker nor will I borrow money I haven't got - she was both of these. She had a real entrepeneur spirit and was always buying the latest gadget or tool that she saw as an "investment". I'm so glad that we didn't pool our finances and kept our business interests separate as this made it easier to part company. I later found out that she had huge debts which I could have easily been liable for.
"Since then our artistic lives have both taken different routes - I sometimes read about her new ventures in the press and she appears to have made a success in her chosen field. I'm so grateful that she taught me how to be customer-friendly and how to promote myself but I wouldn't choose to go into a partnership with a friend again". Rachel.

This post has been about partnerships on a small scale but there are also partnerships with banks, other businesses and sponsors that hasn't been discussed. We will be returning to the subject of partnerships in the next post.