We've all been there. You have a great business idea and an awesome opportunity. You just need some help getting the venture off the ground.

You feel you can't go it alone. You believe that if someone is there by your side helping you through the highs and lows of the start-up process, you will have a greater chance of success. Well, not so fast.

In my experience as a CPA for 20+ years, business partnerships generally don't work very well. More often than not, they end in failure. Simply stated, when you start a business with another person you may have similar ideas and goals, but different motivations and mindsets. As a result, I have witnessed sleep-less nights, lawsuits, and even threats of violence (unfortunately it's true).

So why do these partnerships crash and burn? There are many reasons, but a few stand out.

Work ethic

As entrepreneurs, we all work hard. But it turns out working hard can be very subjective. Partners often agree to dedicate themselves to the new venture. For some people this means 6am to 10pm. For others, 10am to 2pm is acceptable. It seems we all have different definitions of what it takes to be successful and the skills we bring to the table.

The mindset

The mindset and background of the partners is important. One partner is usually the "rainmaker" and the other one is the "worker bee." The rainmaker brings in the business, while the worker bee gets the work done. The rainmaker is often not too detailed and leaves the specifics to the worker bee.

The problem is that they each think they're better than the other. If they don't acknowledge each of their strengths or weaknesses, it can make it difficult on the partnership. They must realize the important skills that each bring to the table. If a partnership has two rainmakers or two worker bees, this is a recipe for disaster.  

Money (of course)

You know this is a big one. Some partners want to pull money out of the business as soon as possible to put food on the table. Others may have a working spouse and want all profits to be invested back in the business. It's tough to balance the two. Setting clear financial goals up front is imperative.

Two best friends. One failed partnership.

I could give you many examples of failed partnerships, but one stands out. My two clients were best friends and decided to start a real estate business. The rainmaker was busy chasing real estate deals, while the worker bee was busy holding everything together. Then all of a sudden one questions the other about certain expenses and the other gets questioned over work ethic.

After months of threats and over $100,000 in legal fees the partnership is over. And a friendship was forever ruined. The good news is that even though the partnership failed they both went on to have other successes. Unfortunately, to this day they still don't speak to each other.

Recipe for success

Even though most partnerships are destined for failure, a lot of good can come out of them. Here's how you can increase your odds of success:

  1. Acknowledge that you are scared. The partnership may have allowed you to take the leap of faith and join the ranks of the self-employed.
  2. Make sure that you have a clear vision about the goals and aspirations of the partnership and what you both expect to get out of it.
  3. If you were friends first with your partner, acknowledge upfront that the business may ruin the friendship. Be especially careful with family members.
  4. Ask what you are trying to accomplish. I am not just talking about financial considerations, but personal concerns as well.
  5. Make sure that you have an iron clad operating agreement that clearly spells out rolls and responsibilities. Make sure there is an exit strategy if things don't work out.

I am certainly not telling you to avoid going into business with someone else. Just be smart about it. Don't be blind. Building a new business is a lot of fun. Even though your partnership may end in failure, it may still be deemed a success.

Published on: Dec 27, 2017