Can You Be You with Your Business Partner?

Chris, there is a lot of tension between me and my business partner. I feel like I’m always being judged. My partner is always complaining about working more hours than me. That might be true, but I think I get more done. Things really go bad if we stumble into talking about politics. 

I don’t know what to do. Walking on eggshells all the time is not fun. Should I just get out? Can you help us?

It’s Horrible When You Can’t Be Yourself

Partnerships are much like romantic relationships. When it’s all new and exciting, we can easily become infatuated to the point of overlooking differences. After all, don’t the differences make the partnership stronger?  Sometimes. Most often differences magnify with time and become triggers to arguments.  As time goes by, the differences you ignored become important. The friend from college who was not good with money, but was fun to be around is now responsible for your income because she handles all the sales at the business you started together. 

That friend on the other side of the political fence from you, the one you thought gave you a different perspective, the one who was in your wedding, is now the most annoying person you know. At this point, it’s best to keep your mouth shut and avoid an argument.  

It’s horrible when you can’t be yourself.  Can anything be done?

Can This Be Fixed?

Yes, it can be fixed, but it could take a long time and a lot of mediation work to resolve the problem. The reason it is so difficult is because we’re usually dealing with deep-seated issues and very personal beliefs. The hardest thing to change is someone’s mind. If you’re not valued because you don’t agree on religion, politics, or some other issue, either your partner has to learn (again) to accept you or you need to change. Neither of those is easy. 

How Can We Solve the Problem?

Unfortunately, it’s probably time for one of you to leave the partnership. Unless you are willing to invest the time, money, and work into making changes at a personal level, it’s probably time for someone to go. 

Buyout, Dissolution, or Sale of the Business

Those are your options. One partner can buy the other’s interest, the partners can agree to dissolve the business, or the partners can look for someone to buy the entire business.  Hopefully, the Operating Agreement specifies how each of these options is handled. 

Wait, What? No Operating Agreement?

You’re not alone. In all the cases that come to me, rarely is there an Operating Agreement and when there is, most of the time it’s too vague to be of much value during the time you need it most. 

The Operating Agreement should contain a clear Buy/Sell portion that governs how a partner can buyout another. In fact, it should determine a method of determine the price of the buyout! Yes, that’s right.

Many lawyer-prepared buy/sell agreements simply say a partner may buy the interest of another partner at FMV. Fair Market Value   My question is, how will you determine Fair Market Value, especially in middle of a dispute serious enough to cause a partner to wat out?!

I highly recommend the buy/sell include the method to determine the amount of any potential buyout by a partner. If the method is to hire an appraiser, the buy/sell should say that an appraiser is agreed upon by both parties (or all parties depending upon the number of partners) and that the parties agreed to use the valuation the appraiser presents. Or, there can be a method specified to calculate the valuation. For example, you could use 1X of annual revenue or a multiple of net profit for one full year plus cash on hand. 

As a Partnership Mediator, I help guide many partners through their buyouts and those discussions can be very stressful for everyone involved. All that stress can be avoided with a well-defined buy/sell provision. 

 

Is It Too Late to Get a Good Operating Agreement? Is It Expensive? 

It’s only too late if partners stop talking to each other.  If things are still good between partners, get this done ASAP. I can help you save a ton of money now, and if you ever need to exercise your buy/sell agreement.  

A Simple, Inexpensive Agreement Will Serve

If money is very tight, let’s do a simple buy/sell agreement covering exactly how a partner buys the interest of another partner (voluntary exit of the partnership), We can do this for you in a couple of hours and you’re protected. You can create an entire Operating Agreement later when the business has the means. For now, get the most important part of any Operating Agreement done. Over half the cases that come to me are buyouts with nothing to guide the process. We simply have to have a number of meetings until all the details are worked out and the price agreed upon.  Save the stress.

If you can’t be yourself, your real self in your partnership, it’s time to make a change. 

I can be reached during office hours (unless I’m in a meeting) at (530) 467-5690. You can text me at (650) 823-2803. Or, you can email me at Chris@TeachU.com.  (Obviously I want to hear from you)

Let’s not delay implementing this important protection for your business interest.

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