I find myself writing about my clients and their bad business partners with the same sentiment and phrases that I would probably tell the story of my failed marriage with. They all start out the same. On paper, they seemed so right. Similar background, seemingly shared goals and vison for the future. Seemingly similar intellect. Smiles, nods and agreement as to the way we would collectively go about things. The excitement was palpable, and the future was so bright; a new fortune was just around the bend… and then it went so terribly wrong.
The facts are that in many instances, Partnerships, Mergers and Acquisitions are wonderful things. Done correctly, the coming together of companies can lead to exponential growth and significant return on investment. Done poorly however, it potentially could put both companies out of business.
[Read: How to Properly Form a Partnership]
Probably one of the single most important decisions a business owner can make on behalf of their company is choosing a Partner. If that decision turns out to be a bad one, there is little that could be more demeaning to a business owner’s ego or destructive to the business. Successful business owners are masters at reasoning away lingering doubt with optimism and faith in their own ability to manage or negotiate their way through any adversity or disagreement. While this is great characteristic to have for an entrepreneur in general, it should not be applied to personal relationships. Optimism simply cannot overcome poor behavior or personality traits of another when they are bound by Partnership.
The good news is the rules around picking a good business partner are not that mysterious or complicated. It simply takes a business owner who can be honest with themselves and choose to not make up excuses for others. Successful partnerships, much like successful marriages must start out with transparency and a real commitment to win as a team.
Look for the Red Flags. If they are there- 3 simple words. “Don’t do it!”
It does preserve one’s ego to simply say, “I had no idea!” But, let’s be honest. How true is that really in most circumstances? Red Flags are always apparent with bad businees partners. The annoying thing about them is generally they show up and interfere with what it is we are really wanting to do at that moment…. Like jump in with both feet to an exciting and potentially highly profitable business arrangement. We so badly want this to work out! We so badly want to be right about this! So badly we, in fact, choose to ignore the little hairs that are standing up on the back or our neck and in some cases, even our own common sense.
[Read: What Did You Get Yourself Into? (Understanding Partnerships)]
Below are examples of telling Red Flags in choosing Business Partners.
1) Bad business partners don’t work hard.
Owning your own business is hard work. Any business owner will tell you they work harder at self-employment than they ever did working for someone else. Working hard means just that; you show up to work and give it all you got. If you know a potential partner to not be that engaged in whatever business they are in now, don’t kid yourself into thinking they will suddenly become engaged once they own a business. Expect more of the behavior you already are witnessing. They don’t like to work on Fridays, and they leave their office everyday by 3:00? That’s not someone who is thinking about working hard. That is someone who should be thinking about retiring. Understand that their half checked out approach is how it’s going to be when they own part of your company. How can I be so sure you ask? My friend, it’s a proven fact that the best predictor of future behavior is past behavior.
Partnership by the nature of its name is supposed to be about fairness. All the Partners should benefit from the groups’ efforts. Resentment is assured when one of the Partners doesn’t feel they need to pull their fair share.
2) Large Egos make bad business partners
There is more to a merger or partnership than business cards that say “Partner” in the Title Line. If the negotiations seem to be all about them, pay attention! Its not just a red flag, it’s a series of cannons going off and fireworks spelling out “BAD IDEA” in the sky. How is your future business partner referring to the impending business arrangement? Are they talking in terms of “we”, “us” and “ours” or is it all “me”, “my” “mine” and “I”? People tend to be their most honest when they think no one is paying that close of attention to their behavior. If in the earliest discussions regarding a potential partnership they don’t freely use inclusive verbiage in correspondence and conversations, beware! They are not planning for an “Us” they are planning for an “I”.
3) Do they have the emotional fortitude necessary?
Business ownership can be tuff. Everyone can be a critic. Clients, employees, vendors even the other Partners may from time to time be forceful or cross. Sometimes what you wanted to happen simply doesn’t. You may be out voted on certain things. Feelings will get hurt. Things are not always champagne and flowers. The business might very well fail. Can your potential partner roll with this? Can they handle not being “right” or always getting their way? Are they confident enough as an individual that they don’t need to have to have a “yes” person following them around the office to tell them they are great? Can the potential partner handle constructive criticism without having an emotional breakdown? Can they sit through an intense meeting without crying? Partnerships of any kind- personal or business, are inherently unadaptable for individuals who suffer from either low self-esteem or extreme vanity. If your potential partner enjoys playing the victim for attention or can’t handle criticism; find another candidate. These kinds of people can make for bad business partners.
4) They take, but not so much on the giving?
Is your potential future Partner the person who always wants “free stuff”? You know the type. The one who is always asking for the free tickets? Do they constantly take advantage of other’s marketing budgets or good graces by dangling business they never intend (or do not have the power to give) over others? In casual/friendly lunches do they order the most expensive things on the menu and then suggest you “split” the check equally or tell you they will get it “next time”? Do they occupy “free” seats at Galas and Fundraisers but can’t see their way to making the smallest personal donation? Maybe they use or borrow things but don’t replace them. It is, after all, the little gestures in life that matter. If you know in your heart a potential business partner is a “User” also know that “Users” make bad business partners. If they are cheap or selfish about the small things don’t be surprised that they will be cheap and selfish on the big things as well.
5) Can they afford to Partner?
It’s called a Personal Financial Statement. Get one from anyone who you are considering a partnership with as well as their last year of their personal bank statements and last 3 years of personal tax returns. If they do not have their personal finances under control, they will be of no help to you in a “Partner” scenario. Partners or individuals with significant ownership in a company generally are required to offer up their personal guarantees for lending and other vendor relationships. Partners need to have the where with all to go with out or delay compensation for the betterment of the company from time to time. The rewards of Partnership and being a business owner are many, however, cash is king and if you are taking on Partners who cannot help in this regard, spare yourself the suspense; its not going to work out well. So, look closely at any potential Partner, if they are driving a luxury car, bragging about their extravagant vacations and layering on the Gucci every time they step out of the house, they are one of two things. 1. Independently wealthy and probably don’t even need to work in the first place or 2. “Living beyond their means” which translates into “Financial Moron”. This means they regularly use bad judgement. If the latter is the case don’t kid yourself into thinking their bad judgement won’t extend to your business relationship and make them a very bad business partner.
Financials are also great indicators of behavior. If for instance a potential business partner’s bank statements show excessive ATM withdraws at a casino, you might have someone with a gambling problem on your hands. Noticing lots of overdrafts on those bank statements? Why is that? Do they spend more than they have? Do they have issues with impulse control? Maybe they honestly don’t care about overdraft fees because they can’t be bothered with details or planning. None of these excuses lend themselves to the characteristics of a good business partner. It’s better to know about these issues now rather than when the livelihood of your company may depend on it.
6) How did they get along with their last Partners or Supervisors?
The same way you would seek a reference about an employee you are about to hire, listen to what is being said by and about your potential new Business Partner. Did they get along well with their last employers or partners? How did things end? Does your potential new partner speak of the past respectfully with a degree of professionalism or are they full of venom?
Earlier I talked about the best predictor for future behavior is past behavior. If a potential business partner has nothing nice to say about past employment and Partnerships- listen carefully and take it to heart. Were they always the victim? Is someone else to blame? If so, don’t be surprised to uncover past lawsuits against former businesses. It is a simple rule; If they can’t say something nice about a past employment experience, they will probably have nothing nice to say about their experience with you in the future- so be ready to “Lawyer Up”.
At the end of the day though, no list of warning signs can replace one solid piece of simple advice. Don’t make up excuses for people who act like jerks; and definitely don’t go into business with them. Don’t sign yourself up for bad business partners without taking proper precautions should things go south.
Does this sound like your Partnership?
If this sounds like something you’re currently dealing with and need assistance, make sure to Contact Us today. We provide Partnership Dispute Resolution for any size business.
In August of 2019 I opened a small coffee shop with 3 additional partners. Prior to our opening we created an LLP on LegalZoom, however we did not create a partnership agreement. The other partners include a married couple, who each of 25% ownership. The couple asked if they could be put in charge of the accounting portion of the business as with my background in coffee, I would be an asset for the operational portion of our business. Fast forward to this January/Feb…the couple decided to take a vacation and in the week they were gone, my remaining partner and myself had our world flipped upside down as we found out that the past 6 months had been a lie, meaning that we found out taxes were not paid, vendors were not paid, our newly hired accountant found that nearly $10,000 in cash was missing and the list goes on. Daily it seems as though we are finding things. When the couple arrived home and after they knew they had been “caught”, they packed up a moving truck and moved back with their parents in a different state. We have had zero communications. Our credit union has emailed asking them to sign documents to remove themselves from our bank accounts, nobody is receiving a reply. Is there a way we can remove them from the partnership without a partnership agreement? We just want them out. Thank You.
That sounds terrible. A LLP is subject to the “Uniform Limited Liability Partnership Act” in whatever state it’s formed in. You should hire a local business attorney who can review the Act, and let you know what your rights and options are, given the factual circumstances.
When you don’t have a Partnership Agreement, you need to fall back to the Act. Hopefully, there will be language in the Act to help you with this circumstance, but I’ll warn you, the Act is generally high-level and doesn’t always go into detail on dispute-resolution type issues, like you’ve outlined. You may need to seek judicial intervention, but I need to let the local attorney weigh-in on that.
Good luck to you. Larry.