Most business partnerships fail….and what you should do about it. | Ryan C. Young | Richmond Business Attorney

Partnership Attorney - Ryan C. Young
Partnership Attorney – Ryan C. Young

Many partnerships set themselves up for failure.

I have always had an entrepreneurial spirit.  From a very young age, I always envisioned myself running some sort of business.  Prior to becoming a lawyer, I was talking seriously with two friends about potentially opening a restaurant together.  All three of us got so ecstatic about the possibility about opening that we didn’t give one thought to what “success” would look like.  Luckily, we  parted ways friends before we “sealed the deal.”  I’m happy to say that they are now running two very successful restaurants and we are still friends.  

What went wrong?
We never once really sat down and laid out what each persons’ role would be on a day-to-day operational basis.  We were too busy counting our customers and money before even considering that we might have very different visions for the direction of marketing, operations, debt, management, staff, major decisions and much more.  I should add that all three of us had prior experience with running restaurants.  Quite frankly, I do not think we were any different than the majority of people who begin partnerships with friends/colleagues/family members.

What any person considering entering a partnership should consider:
Every person who enters into a partnership (regardless of structure) should consider having a formalized partnership agreement, operating agreement or bylaws.  Merely sitting down together and working through a written agreement between the co-owners will quickly determine whether you are compatible at all.  A good agreement between co-owners should consider the following: 

  1. Management – Who has authority to make decisions? 
  2. Debt – How much debt are you willing to go into? 
  3. Exit Plan – You will save yourself a ton of headache if you set an exit strategy in advance.  You may even be able to remain friends after the fact.
  4. Tax Planning & Accounting – Will one of the partners act as the tax advisor and bookkeeper for the partnership?  Or, will you send your statements elsewhere?
  5. What is the status of the capital investments in the business?  
  6. Marketing – Are you on the same page regarding marketing?  Will you have monthly meetings regarding your marketing plan? 
  7. Does the business plan reward the company as a whole or just one particular member? 
  8. What are the expectations for hours worked in a typical week? 

All of these things should be laid out and the appropriate documents created to solidify your decisions.  Remember, you can always alter the agreement after you begin if you determine it needs changes.  However, do not put off executing a formal agreement.  

I wish you much success in your new business.  However, if you are having doubts, you should talk your concerns over with an attorney so that you know you will be protected should your partnership fail.  Remember, I cannot guarantee that your business partnership will not fail; but I can guarantee that developing a solid formal agreement will give you peace of mind.


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