Is It Time To Leave Your Business Partner Behind?

Posted by William J. Piercy on

It’s a new year, full of promise and opportunity.  But if you are stuck in the same bad business relationship that held you back last year, being optimistic about 2017 can be a challenge.

Owning a business is hard enough.  Running that business with a partner who no longer shares your goals, values, or work ethic is a harbinger of failure.  If you find yourself nodding in agreement as you read this, it may be time to leave your business partner behind.  But how?  The tips below can help you think about how to extricate yourself from an unproductive business relationship, allowing you to move on to better ones.

Determine Rights and Obligations
You and your business partner(s) have rights against and obligations to each other and to the business(es) you own together.  You may have similar rights and obligations to landlords, lenders, vendors, and customers.  Sometimes, these rights are formally memorialized in shareholders agreements, personal guarantees, employment contracts and other corporate documents.  Maybe it’s just in an email or on the back of a napkin.  Whatever the format, gather and digest this information.  Figure out, at a high level, who is obligated to whom, for what.  From there, you should be able to gauge, in broad terms, who delivered, and who didn’t.  What needs to happen for this partnership to end?  Are there loans, leases, or other long-term obligations to be factored into an exit plan?  Are there potential buyers for the business?  Make a list of the obstacles between you and a clean exit.  This would also be a good time to confirm that you have access to the information and critical infrastructure of the business.  Does your partner generally handle the company’s finances, or manage the server network?  Have a look at the books.  Make sure your passwords and keys still get you where you need to go.

Do Not Help Yourself to Company Property or Data
Particularly when your partner is being difficult, it can be tempting to help yourself to an extra distribution, or to forward the company’s customer list to your home computer.  Resist the urge.  You might own a piece of the company, but company property belongs to the company.  Taking it will get you sued.

Decide Where You Want To Go Next
If you don’t know where you’re headed, it’s unlikely that you’ll get there.  Figuring out what you want to do next is an important step in breaking with a business partner.  Do you want the business?  Do you want to remain in the same industry?  With a goal in mind, you can chart a course to get there.  Settling on a destination has a second advantage.  It focuses on the future, not the past.  Whatever the reason, your business relationship is ending.  If you could fix it, you would have.  Understanding what went wrong with the partnership is valuable, but dwelling on it is unproductive.

Tell Your Business Partner You Want Out
Depending on your situation, this may be the easiest or the hardest part of your exit.  Whether you schedule a meeting over coffee or send an email, explain in clear, respectful, non-accusatory terms that the business relationship is no longer working for you and that you want out.  Offer to cooperate in a smooth transition.  Consider waiting for a response before sharing your business transition laundry list. You might be surprised.

Negotiate From a Position of Strength
The information gathering and soul searching exercises described above will help you figure out the result you want and to determine the leverage you have to achieve it.  While it may seem counterintuitive, consider what your business partner would want if she performed the same analysis. This is not altruism, it is sound negotiation.  The more you understand about your partners’, goals, interests, limitations, and opportunities, the more negotiating power you have.  Good negotiation is looking out for your own interests, while framing your communications in terms of the interests of the person with whom you are negotiating.

Agreeing on an amicable separation plan is best, but not always possible.  If your partner is unwilling to negotiate in good faith, stop trying.  Appeasement doesn’t work.  Part of negotiating from a position of strength is knowing when to stop negotiating.  You have options.

You can walk away.  Depending on your circumstances, you can abandon the sinking ship.  While doing so may result in significant sacrifice, financially or otherwise, it can also be liberating.  As Paul Simon put it, “Just drop off the key, Lee, and get yourself free.”

You can stay.  Remaining in the partnership, even a dysfunctional one, may be an option.  This is rarely fun, but it is probably just as unpleasant for your partner.  A few weeks of this is sometimes enough to bring your partner to a more reasonable position.  Alternatively, it might drive you crazy, so proceed with caution.

You can fight.  When negotiations fail, and neither staying nor walking away are viable options, litigation may be.  Through a lawsuit, you may be able to recover damages for malfeasance, resolve disputes about ownership and compensation, and perhaps even dissolve the business and divide its assets.

Get Professional Help
Breaking with a business partner can be stressful.  Don’t go it alone.  An experienced attorney, accountant, and business advisor can relieve much of the anxiety associated with a business divorce and can help you make informed, level headed decisions.

Life’s too short for bad business relationships.  Move on and move up.