“Perhaps I picked the wrong person”: Lessons in forming business partnerships

“If you find the right partner, they can provide skill sets and strengths that you don’t have,” Andrews says.

“They can share the load, the costs and the burden of running a business, and you can bounce ideas off each other.”

That all sounds positive. So, what went wrong in her three tries?

“Perhaps I picked the wrong person,” she says.

“Maybe my due diligence wasn’t as thorough as it should have been, and their skill set wasn’t what I thought it was. Sometimes you just don’t know a person until you go into business with them.”

Andrews is very happy with where her business is at right now, thanks in particular to its strong processes, systems and staff. She simply doesn’t need a partner.

At the same time, she understands why people decide to take the partnership route, and has powerful advice for those that do.

Know your partner

Various questions must be asked of each partner, Andrews says. This can be challenging amid the excitement and positivity of the early days of planning, a period where success is imagined rather than earned.

“It’s important to find out about their skill set,” she says. “Perhaps you’re looking for someone who has your same skill set, or maybe you're looking for complementary skills, to fill a gap.”

Either way, Andrews says, don’t simply take their word for it. Look for hard evidence – a track record of the individual performing at the level they claim.

The same is true for a potential partner’s strengths and weaknesses. Can they bring in new business? Can they manage and lead people? Are they detail oriented or big-picture thinkers?

“Often accountants have no idea how to run a business,” she says. “Being an accountant and running a practice are two completely different things.”

“In accounting, you’re just doing people’s books. In practice, you’re running a business and managing people. I know it sounds funny, but a lot of accountants don’t know how to run a business.”

Discuss a fair split

If your client list is three times longer than theirs, is 50/50 a fair split?

“That’s an important factor,” Andrews says.

“If what they’re bringing into the business is not 50%, if you’ve got the majority of the client base, why are you bringing them in as an equal partner? You need to have honest conversations around that.”

There may be a perfectly good reason to agree on an even split when there is an imbalance in client lists, skills, experience and more. Perhaps an older partner is looking to eventually sell to the younger partner, or to have the business support them part-time into retirement, for example.

“We all have different goals and desired outcomes,” she says.

“That all needs to be clearly discussed and understood up front, before any agreement is made.”

Prepare for the worst

What happens when there is an insurmountable problem such as a breakdown in trust, a desire by one partner to move in a new direction, or a death of one of the directors? What is in place to ensure the business does not suffer, or even fold, as a result?

Andrews says that a shareholder agreement or partnership agreement is essential. It must be legally binding, containing details of what will happen should the partnership fail.

“If one person originally had the office or lease, what happens to the lease?” she says.

“What happens to the client base? Who owes what?”

Insurances can also help to prepare for the worst.

“I had a client that had two directors who died at different times,” Andrews recalls.

“With the first, there was a huge issue of paying out their share of the company. That wasn’t an issue when the second director died, as they had learnt their lesson and put keyman insurance in place.”

Often there are large sums of money involved in a split, and sometimes the business simply can’t afford to pay them out. So, partnerships require clear agreements backed up by insurance, for when the worst happens.

“You might be able to get templates for such an agreement, if you don’t want to spend a lot on lawyers,” she says, adding that many accountants are able to draft legal documents themselves.

“The important thing is to have the discussion about the worst case scenario. Don’t wait until it happens – by then it’s too late.”

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