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Updated: April 13th, 2020
Like all relationships, business partnerships are complex. A healthy, cohesive collaboration can take your business to the next level, while a competitive or toxic dynamic can drag your business down.
Despite you and your business partner’s best intentions, not all partnerships are built to last. In fact, the average business partner breakup rate for startups is 20 to 30 percent higher than marriage divorce rates. And splitting up with your business partner is, in actuality, very similar to a divorce, said Michael Menninger, a Certified Financial Planner™ and president of Menninger & Associates, a company that offers financial planning and retirement strategy services. Menninger learned a lot about the process after buying out his business partner to retain sole ownership of his company.
If you’re concerned your business partnership is no longer working, here are three signs it may be time to end it.
Every business partnership operates under different terms. You and your partner may have agreed, for instance, to distribute work responsibilities 60/40 to better suit your strengths and time commitment. Or, you might have an equal split. Regardless of the numbers, if you end up consistently doing more than your agreed-upon share of the work, the partnership will feel unbalanced.
It’s stressful to maintain operations when your partner isn’t contributing enough. Plus, when you don’t feel supported or recognized for the work you do, you’ll begin to lose trust and respect for your business partner, and develop resentment. If you and/or your partner are unhappy going to work every day, Menninger said, that’s an indication it may be time to end the partnership.
It’s normal to have occasional disagreements with your business partner. In fact, sharing your differing opinions can help you challenge one another’s ideas and grow. That said, if you continually find yourselves on opposing sides of major issues, you may not share the same vision.
Certain decisions, like what color to paint the office, probably won’t affect the business long-term. But choices like hiring, expanding into another city, or finding new investors can all influence the future of the company and potentially shift its culture and processes. Menninger said he and his business partner had different outlooks on the future of the business, which led to disagreements about the best way to manage and grow their firm.
If you can’t find common ground or compromise on fundamental decisions involving money or the direction of the company, you won’t be able to build a successful business together.
Maybe you like to check in with your employees once a month, but your business partner prefers to hold two meetings a week to monitor everyone’s progress. “We had a very different way of how we handled clients,” said Menninger. Different working styles can cause friction and resentment as both parties struggle to manage or work around their partner’s particular style.
Plus, the way you and your partner approach day-to-day decisions impacts the company culture, which then affects how your employees work.
Not all business partnerships end in anger or disaster. If you decide parting ways is the best move for you, follow these three tips to ensure a smooth transition.
Sit down with your partner when you’re both in a clear, calm headspace, and talk openly about what you want. Try not to let your emotions dictate the conversation; instead, think rationally and focus on the fact that you both want the best for each other and for the business.
The goal is to find a mutually beneficial solution, said Menninger. You need to consider your own interests, while also ensuring your business partner doesn’t feel like “he’s getting the short end of the stick,” he said.
You may want to consider bringing in a third party professional who can mediate when necessary. This helps “improve your chances of it being an amicable split,” said Menninger.
Before you rush into a decision, take time to understand and evaluate the benefits and consequences of each possible choice. What would a partner buyout or classification change look like, both financially and structurally? Could you take an alternate route, like minimizing your partner’s role and return?
It’s crucial to think about how dissolving your partnership will affect the business. Your partner might be responsible for 80 percent of company sales, for example, so you need to consider how the business would fare financially without that contribution.
And money isn’t the only factor. It’s also a good idea to think about how the business’ day-to-day operations may change in each scenario, as well as your schedule, personal health, and attitude toward work. Ultimately, if “you feel the partnership is decaying the growth of the company,” said Menninger, or that you would be happier on your own, you should consider separating.
Before you make any decisions, call your personal and business accountants to help you through the process. In addition to providing smart counsel, they’ll iron out contract details and document your conversations with your business partner.
“I developed a document that spelled out what I proposed as a fair split,” said Menninger, “and provided a rationale as to why I thought it was fair.”
Keeping accurate records of everything you’ve discussed and decided upon is key to preventing future confusion, blame, and lawsuits. It’s paramount to set clear terms of ownership when splitting up, as well as outline the roles, responsibilities, and influence each partner has going forward.
If possible, Menninger said, try not to allow anything in the agreement that prolongs an argument. “If you can expedite the payout,” for example, “it’s a good way to go,” he said.
Breaking up with a business partner is never easy, but taking the right steps can help you move forward in the healthiest, most financially secure way possible.
Paige Smith is a Content Marketing Writer and Senior Contributing Writer at Funding Circle. She has a bachelor's degree in English Literature from Cal Poly San Luis Obispo, and specializes in writing about the intersection of business, finance, and tech. Paige has written for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.