3 Things Successful Business Owners Get Right. Discover how to get out of the weeds so your business can grow!
Years ago, a business partner and I started our law firm together with the happiest and best of intentions: visions of profits, freedom from the tyranny of others’ corporate cultures, and fun in an often dour profession.
We signed a partnership agreement.
For a while, it worked.
At least the freedom and fun part, which made the lack of significant profits bearable.
Twelve years later though, we parted ways and not on the best of terms.
For several years afterwards, we were like the quintessential newly-divorced couple. Not yet totally disentangled financially. Not enough time had passed to heal the wounds. Each looking at the other as the “guilty party.”
From early idyll to evil eye.
Where did things go wrong? Why didn’t our partnership agreement help?
Statistics indicate that close to 70% of all business partnerships fail.
That’s staggering, when you consider how important partnerships are to solo and small firm owners — who need them to increase bench strength and bandwidth … and make themselves more attractive to larger clients.
For many business partnerships (including my own), it wasn’t so much what they did, but what they didn’t do that led to their demise. There’s an intangible “glue” that holds great business partners together … and it’s often outside the four corners of a written partnership agreement.
Here are 5 critical factors that keep successful business partnerships together:
- Keep working on the partnership relationship. It’s easy to become so busy working on the business and trying to make it successful that you don’t take time to reflect on the vision for where you want the business to go. (Like the married couple that’s so busy tending to the kids, they don’t build their own relationship). Partneres can fall into a pattern of behavior where they stop thinking of themselves as partners and just act like independent departments. TIP: Set aside time at least twice a month to talk about where the business is going and whether that dovetails with your plans – both professional and personal.
- Look carefully at the numbers. While many form solo businesses and partnerships for the fun and flexibility, finances are a crucial piece of the puzzle. Pay close attention to running regular income (P&L) statements and balance sheets. Not looking at the numbers is often a way to stick your fingers in your ears and singing “la-la-la” as loudly as possible to avoid facing whether the way you’re working makes sound financial sense. TIP: Know exactly what each of you needs to earn each month from the business to be sure that it’s the right investment of your time and energy. Talk about it! Bring it out into the open. Don’t let your ego get in the way of acknowledging when a business venture is not meeting your financial expectations.
- Set limits on capital infusion. In my partnership, we often threw money at the problem. When times were tight (and believe me, there were some v-e-r-y lean years), our solution was to draw upon our capital resources, rather than take a good, hard look at whether our business model was a sustainable one. Positive cash flow can be deceptive on paper. It’s not positive if the reason you have made the numbers work is that you’ve drawn on your credit lines. TIP: Reign in spending during lean times.
- Agree on the value of each other’s contributions–and revisit that understanding. At the beginning, business partners usually respect the different talents and skills each brings to the relationship. Over time–especially when times are VERY good or VERY bad–an Orwellian attitude of some pigs are more equal than others can arise. Who’s contributing more? Who has more on the line? If the business has changed direction, are both of you as valuable to the business? TIP: These are hard questions to answer on your own. Consider having third-party gatekeepers and support (bookkeeper, business coach) to provide an outside perspective and help facilitate the conversation.
- Communicate personal goals as they change and grow. As small business owners, we can’t help that our personal lives impact our business. Having children, caring for aging parents, wanting to retire and making a long-term plan for succession are all natural and important. But they place very different perspectives on work, the time you can spend, and the money you need and want to generate. TIP: Voice your needs actively. And take time to gain clarity on what those needs are.
How could our partnership agreement have helped?
Actually, it was a very well-written document.
But in the end, a partnership agreement is only as strong as the partners who are willing to abide by its terms.
When communication falters, the bonds of accountability, integrity, and trust between partners weaken.
Keep your partnership agreements strong by making your partnership relationship stronger. Don’t shy away from the difficult issues or allow the distraction of busy-ness to interfere with the vigor of your business.
Open the lines of communication.
In the end, that’s the glue that keeps successful business partnerships together.