Partnering Up

PARTNERING UP

What to know when you start a business together.

By Stephen Winterrowd

Going into business with a partner can be great—if you have the right other half and know the expectations. Whatkinds of things should you think about when you set up yourarrangement? Here are a few tips.

Just because you have fun together on the golf course doesn’t mean you’ll be a dream team in business. When you date someone you try to determine if she would be a great partner in life and you need to do the same thing in business. Do you complement each other? Does one have food experience and one have back-office skills. If the business is employee heavy, will you both be able to manage staff? Think about both your temperaments and your skillsets.

DEFINE YOUR PARTNERSHIP.

Often I hear about failed partnerships, because one partner felt like he did all the work and the other just collected his 50 percent. The best way to avoid this is to create a buy-sell agreement, or partnership agreement for the corporation that purchases the franchise. If details aren’t laid out in the agreement—like who is responsible for what—then there may be no recourse for a partner who does all the work. The agreement should also include the terms of your partnership. Is it a 50/50 partnership, or 60/40? Who will have final say on important decisions? You want to be sure you can work through any issues that may arise in the business.

PLAN FOR THE UNEXPECTED.

A buy-sell agreement should outline—and resolve—any scenario that could possibly happen during the partnership. When my partner and I drafted our buy-sell agreement, the first item we addressed was death. What happens to the deceased owner’s percentage? Are you willing to work with your partner’s spouse and allow her to maintain the ownership? My partner was single at the start of our business, and I didn’t know who he might marry in the future and whether or not we would get along. So we created a clause for the surviving owner to buy out the estate, regardless of the spouse’s wishes. We also addressed participation in the business, and what would happen if one of us decided to stop working. We had a 50/50 ownership scenario: I managed the sales while he ran the back office.

PROTECT EACH OTHER WITH LIFE INSURANCE.

One thing we missed in our agreement, as many partners do, was funding for unexpected scenarios. For instance, if a partner dies, how is the buyout funded? Without a life insurance policy on the owner with the business as the beneficiary, then you may have to use cash from operations or sell assets to pay for the buyout. What if your home is the only money you can access at the time and you have to use that? The surviving spouse is entitled to the benefits of the partner, and you may have to keep her around if you can’t buy her out. Fortunately, there are life-insurance policies that can be purchased on the owners, but a buyout can happen other ways, too. Consult your attorney and your accountant to determine the best solution for your partnership.

During his many years as a franchisee, Winterrowd has experienced a lot in the franchise world, from the struggles of startup, buying out a partner, expansion, to selling the business. As an independent consultant with The Franchise Consulting Company, Winterrowd uses his experiences and training to partner with clients to help them find the franchise opportunity that best fit their goals. Contact him at Stephen@TheFranchiseConsultingCompany.com or call 310-773-7662.