Some business partnerships are just meant to be and last for many years, even after the namesakes have long left the business. Think M&S, founded in 1884 by Michael Marks and Thomas Spencer. But not all business founders have as much enduring success.
In a previous article I covered the issue of how lonely being an entrepreneur can be. Linked to this issue which many sadly have had to deal with, is the ending (usually prematurely) of a business partnership.
Parting company with a business partner or partners can be traumatic, acrimonious and can get very messy, just like any relationship end.
Whether one partner gets cold feet, wants to take a different path in their career, doesn’t match the energy and vision of the other or if there’s a fall out. Whatever the reason for the breakdown, you need to stay focused on keeping the business going and filling any gaps their departure might leave.
The truth is, if success is slower than you hoped, you often start to see the darker side of your business partners. Stress levels rise, tempers fray and other people – maybe a spouse or family members might start interfering in the background about where the business should be.
Other common situations that can break a business partnership – the sleeping partner who wants to withdraw their investment, the partner who thinks they can do what you do but better, even though you have agreed the division of roles, issues over competence, a person who makes questionable decisions without fully consulting or abuses the company credit card – the list is endless.
First thing to decide is depending on where you are on your entrepreneurial journey is if there is a business to continue if the other person leaves. It may be worth walking away and setting up a new business which gives you 100% control. Many entrepreneurs have set up their own business as they want to be self-employed and therefore teaming up with someone else just doesn’t work for them in the longer term.
If the departing partner brought to the business has a certain skill set, consider how that gap can be filled and how much that will cost the business in the short medium and longer-term. Again, you need to be realistic and consider if there is a business without them.
If you want to and can carry on without them, then it is hoped you will have a shareholder agreement which can be referred to. In this you will have already agreed exit terms already and this can be implemented swiftly and effectively to allow their departure.
A first question I always ask when talking to a founder in this situation is ‘have you spoken to the other person?’ You need to be able to reach a position quickly where both of you are happy with the outcome. Working with solicitors will help you to reach an acceptable agreement but it is essential to value the business right so that you are not paying them too much for their share and this can be critical for future business success.
Whatever stage of the business life cycle you are in, it’s important to maintain a strong cash flow position and you might have to review and adjust budgets and financial forecasts during this period.
It can be more difficult where you want to remove a shareholder or business partner, but they don’t want to go. Again, the starting point here is to refer to the shareholder agreement. It may take time to negotiate terms with them and it is likely to be more expensive to remove them in this way.
Where the sale of the business has been agreed to the remaining founding partner then a set of completion accounts might be needed. There is typically a 6/12-month contingency period during this process where final adjustments are made. Sometimes an audit might be needed to help with this process to provide credibility to the numbers used to establish a fair and accurate price is paid.
The more advisors who are involved, the more complicated the process can get so where you can work with advisors who are used to working together, then you will probably achieve a faster outcome.
Before and after the deal has been concluded, both the person exiting the business and the remaining founder in the business should review their own tax position and wealth planning for the future.
Business founders fall out regularly, some make up and for others it is the end. Make sure you have the right support at every step of your business journey.
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How strong is your business partnership?