Beware ofpartnerships! Some partnerships can be an excellent vehicle for a business and its owners to achieve their goals. However, sometimes they are inappropriate and can be detrimental to the success of the business and its owners. It is essential to those people considering partnerships that the initial optimism and positive feelings they have towards each other do not blind them to the need for rational thought and consideration of the future ramifications of a decision to enter into a partnership.
This paper will set out:
- Why the reasons many people become partners in business may be invalid.
- That if, after due consideration, a partnership is still appropriate, why and how an exit strategy should be developed before entering into that partnership.
This subject is of personal interest to me, as my wife and I are in a successful farming business together, and we intend to be involved in business with others in the future. In the past we were also involved in a family farm partnership. While the family farming business was successful, the eventual end and division of the family partnership was difficult. We initially had been advised to “plan how we were going to get out of business together before we went into business together”. However, the agreement we entered in an atmosphere of optimism and good will was very difficult to execute years later under more strained circumstances.
Since then I have often had the opportunity to talk to other people who have been in, or are going into, business with family or friends. It has surprised me that in many of these cases very little consideration has been given to possible alternatives, or how they would eventually exit the partnership.
My experience, and that of others, has indicated that there is a lack of motivation by people considering partnerships to investigate alternatives, and exit plans. This paper is intended to provoke those people to take the time to fully consider the issues.
Please note that I am using the word partnership here in the broadest sense, i.e. to quote the Oxford Dictionary, “a person associated with others in business of which he shares risks and profits”. The actual legal ownership structure may be a company, a trust or a partnership.
John Ford
