So the time to break ways with your business partner has finally come, huh? Those early start up days where you and your partner were both going to “do whatever it takes,” has now turned into “whatever I can take!” That equity split of 50/50 made total sense back then. But now its ridiculous! You do all the work, while your partner reaps all the benefits.
I get it, I have been there. I know you are in a sticky spot right now. But before I help you get out of your current jam, let me give you a little woulda-coulda-shoulda advice: I advise many entrepreneurs to avoid partnerships, since the primary reason for doing it is the fear of going it alone.
Partnerships are not always a bad thing either. The challenge often revolves around predicting the performance of each partner. And since the future is unpredictable, we default to the old 50/50 split. In the woulda-coulda column, I advise that if you consider a partner in the future that you distribute equity based on performance. Distribute five percent of the equity quarterly over a five year period, based on performance from the prior quarter. This method rewards equity based on the sweat and effort of each partner – not rewarding equity for simply being their at the start.
No more woulda-coulda, let’s get to breaking up your partnership. With the right coaching I was able to exit from both business partnerships I was in with great success – everyone happy, the business healthy, and strong friendships that have continued after.
Just remember that it is not an easy process. Emotion almost always takes the best of both sides and logic gets thrown out the window (along with some office furniture occasionally). As you go through this process, follow the advice that Dale Carnegie shared a century ago – “First ask yourself: What is the worst that can happen? Then prepare to accept it. Then proceed to improve on the worst.”
Unfortunately business partnerships are a little too much like marriage. . . about 50% (or more) end in divorce. Here is what you need to do before, during and after a business partnership breaks up:
Consider All Options
In a situation like this, we often get stuck in a narrow focus of should we keep the partnership or kill it? We get stuck in an either/or situation, when there may be another viable outcome. Have a brainstorm session with trusted advisers (who are not connected with your partner) on all the options.
Review Your Owners Agreement
Before you went into your partnership you likely had an owners agreement prepared. Review the entire document in detail. Be sure to determine where both you and your partner performed or failed to perform in accordance with the document. And, of course review the buy out or partnership termination clauses. If you don’t have an owners agreement, it is going to make this entire process even more difficult. In the absence of an agreement be prepared for of a lot of “he said, she said. ”
Get An Personal Attorney
I am not a big fan of attorneys. Actually, let me put it this way, I am not a big fan of attorney bills. But when an attorney can save me a lot of money and a lot of headache, I become a huge fan. This is one of those instances. Do not use your company’s attorney, that would be a conflict of interest. Find a new attorney who will work with you exclusively. Have her go through everything with you. Have her coach you on the entire process and the if-then events, before you confront your partner.
Protect The Money
When you tell your partner about the breakup, things can go sour fast. Your partner may want to take revenge by racking up bills or draining money. Protect yourself from this unlikely event by capping credit lines, putting credit cards on hold, and moving cash to accountants where money can’t be withdrawn.
Position A Win-Win
When it comes to breaking ways with a business partner, ego always comes into play. Your ego and your partner’s ego. Determine what would be a win for you, a win for your partner and a win for you both. As in any negotiation, you need the other side to have some wins. So go in with an plan that allows you to make some concessions.
Meet Face to Face, Privately
This should be obvious. An email or phone call to say the partnership is off, often makes the message feel even colder. It is going to be a tough conversation, but face to face allows you to show sincerity. Have the meeting in a private area, where raised voices (it may happen) go unnoticed. Make sure you schedule a time to meet where you can go on without interruption. End of day is usually best.
Your Partners Attorney
Advise your partner to get an attorney to assist them (in case they don’t have one already). This shows good faith in keeping the process fair for both sides.
Keep Your Attorney Apprised
Keep your attorney current on all discussions. Document all details that you and your partner agree to on the breakup. Have any new or revised agreements prepared quickly by your attorney and delivered to your partner and their attorney.
Once everything is agreed to, announce it to your staff (get your attorney’s blessing first). They will likely suspect something is going on, and the gossip will ensue. Set it straight by telling them that you and your partner have agreed to go separate ways and what the plan is going forward. Any change in leadership can be scary for your staff, so this is a critical time to show your confidence.
Once the partnership is dissolved, the job isn’t over. You need to follow through on whatever you agreed to. Make sure you meet every financial obligation and other milestones on time, otherwise you may be in for another difficult round of “talks.”