Avoid partnership pitfalls: be clear from the start
13 August, 2012 - Ability, talent, and flair are the drivers of a small business. Find these characteristics in a partner whose abilities complement your strengths, and you have a business relationship that can take an enterprise to new heights. But, say the experts, getting the right business partner on-board should be very carefully considered.
Partners should understand each other, know exactly what their respective roles are and what they are expected to contribute to the business. With this in place and the essentials put in writing, chances are that these relationships will prosper, and reflect in the success of the business. That was the advice of the Business Coach on the Standard Bank-sponsored SABC3 series that advises real business owners on the challenges facing their small business.
Clive Pintusewitz, head of Small Enterprise and Enterprise Development at Standard Bank, says: “The dynamics of a partnership can literally make or break a business. Taking someone into a business because you are friends, or simply because they have capital to inject into the business, could be highly problematic in the medium to long-term.”
“Generally, good will and excitement prevail when a business partnership is established. However, when the going gets tough, reality sets in, and disputes, dissatisfaction and misunderstandings can erupt. These can ruin partnerships and seriously affect the health of a business,” he says.
He adds that the time partners spend discussing business roles, responsibilities, and even how to deal with the possible dissolution of the business, is what ultimately makes partnerships viable and successful. Once all aspects have been fully discussed upfront, partners should put all agreed items in a document that carries the signatures of all parties.
Mr Pintusewitz advises using the following steps to guide the discussion and the final documented partnership agreement:
• Decide what percentage of the company each partner will hold. Usually this is decided according to financial contributions. The person supplying the most capital gets the most shares;
• Establish who will be doing what. Decide exactly what authority each partner will exercise and what individual roles and responsibilities will be;
• Agree on how profits will be distributed and losses dealt with. If salaries are to be paid, specify what each partner will earn and how bonus structures will work;
• Establish governance guidelines that set out policies that will be followed in the business. Here, it is important to agree on financial controls and the appointment of suitable bookkeepers and accountants;
• Decide what to do if a dispute regarding the business leads to a stand-off between the partners and an agreement cannot be reached;
• Set out what will happen if relationships sour and a partner chooses to exit the business. This should stipulate the rights of the remaining partner, steps to be taken to buy out the shares of the person exiting and what route to follow if the payment required does not meet the expectation of either party. Usually, this means appointing a mutually acceptable person to arbitrate on the financial settlement; and
• What will happen if one partner is incapacitated or dies.
“Taking these steps means that each person involved is accountable, and that the potential for conflict is reduced because there are guidelines in place that can be referred to,” says Mr Pintusewitz.
“There are several other considerations that should also be borne in mind. Although these may not seem to be important initially, they could be essential to future success,” he says.
He points out that a business owner should think carefully before taking a partner on board because the business owner has a business idea but no finance, or needs skills but cannot afford to pay for them. This is one of the biggest, and most common, partnership killers. Partners inevitably end up working against each other, with one becoming liable for the financial and business obligations of the other.
“You should also consider how valuable a person’s friendship is to you before taking him or her into the business as a partner. If things go wrong, friendships suffer. The rule should always be that business comes first and friendships second,” he advises.
Mr Pintusewitz counsels against 50/50 partnerships. If there isn’t a boss, all decisions have to be taken on a consultative basis, which can slows things down and can lead to opportunities being missed and disputes arising.
Finally, he says, there are possible BEE partnerships to be considered. “This may be something that should be seriously considered, especially if your company will be supplying government departments or businesses that favour empowered suppliers. Again, consider all aspects of the partnership and make sure a valid contract is in place.”
The good news is that making these and other business decisions can be made less daunting by accessing the “Coach Yourself” modules online at http://thebusinesscoach.standardbank.co.za. By completing the free online modules, you can identify the sticking points in your business and take the appropriate steps to address and correct them.
Note to the editor:
In the seventh episode of The Business Coach that aired on 12 August 2012, we saw how important it is to have a sound business partnership that works. In episode 7 we saw how to avoid partnership pitfalls from the start and remember in business, friendships second.
In the weeks ahead, SABC3 viewers will see a number of different issues that small business owners experience on the programme. Viewers can tune in at 4pm on Sunday, 19 August 2012 to see elements of sales management to motivate your team.
Anique Human | Project Worker
Magna Carta Public Relations
Tel: 011 784 2598 | Cell: 076 028 0807
Website: www.magna-carta.co.za
Partners should understand each other, know exactly what their respective roles are and what they are expected to contribute to the business. With this in place and the essentials put in writing, chances are that these relationships will prosper, and reflect in the success of the business. That was the advice of the Business Coach on the Standard Bank-sponsored SABC3 series that advises real business owners on the challenges facing their small business.
Clive Pintusewitz, head of Small Enterprise and Enterprise Development at Standard Bank, says: “The dynamics of a partnership can literally make or break a business. Taking someone into a business because you are friends, or simply because they have capital to inject into the business, could be highly problematic in the medium to long-term.”
“Generally, good will and excitement prevail when a business partnership is established. However, when the going gets tough, reality sets in, and disputes, dissatisfaction and misunderstandings can erupt. These can ruin partnerships and seriously affect the health of a business,” he says.
He adds that the time partners spend discussing business roles, responsibilities, and even how to deal with the possible dissolution of the business, is what ultimately makes partnerships viable and successful. Once all aspects have been fully discussed upfront, partners should put all agreed items in a document that carries the signatures of all parties.
Mr Pintusewitz advises using the following steps to guide the discussion and the final documented partnership agreement:
• Decide what percentage of the company each partner will hold. Usually this is decided according to financial contributions. The person supplying the most capital gets the most shares;
• Establish who will be doing what. Decide exactly what authority each partner will exercise and what individual roles and responsibilities will be;
• Agree on how profits will be distributed and losses dealt with. If salaries are to be paid, specify what each partner will earn and how bonus structures will work;
• Establish governance guidelines that set out policies that will be followed in the business. Here, it is important to agree on financial controls and the appointment of suitable bookkeepers and accountants;
• Decide what to do if a dispute regarding the business leads to a stand-off between the partners and an agreement cannot be reached;
• Set out what will happen if relationships sour and a partner chooses to exit the business. This should stipulate the rights of the remaining partner, steps to be taken to buy out the shares of the person exiting and what route to follow if the payment required does not meet the expectation of either party. Usually, this means appointing a mutually acceptable person to arbitrate on the financial settlement; and
• What will happen if one partner is incapacitated or dies.
“Taking these steps means that each person involved is accountable, and that the potential for conflict is reduced because there are guidelines in place that can be referred to,” says Mr Pintusewitz.
“There are several other considerations that should also be borne in mind. Although these may not seem to be important initially, they could be essential to future success,” he says.
He points out that a business owner should think carefully before taking a partner on board because the business owner has a business idea but no finance, or needs skills but cannot afford to pay for them. This is one of the biggest, and most common, partnership killers. Partners inevitably end up working against each other, with one becoming liable for the financial and business obligations of the other.
“You should also consider how valuable a person’s friendship is to you before taking him or her into the business as a partner. If things go wrong, friendships suffer. The rule should always be that business comes first and friendships second,” he advises.
Mr Pintusewitz counsels against 50/50 partnerships. If there isn’t a boss, all decisions have to be taken on a consultative basis, which can slows things down and can lead to opportunities being missed and disputes arising.
Finally, he says, there are possible BEE partnerships to be considered. “This may be something that should be seriously considered, especially if your company will be supplying government departments or businesses that favour empowered suppliers. Again, consider all aspects of the partnership and make sure a valid contract is in place.”
The good news is that making these and other business decisions can be made less daunting by accessing the “Coach Yourself” modules online at http://thebusinesscoach.standardbank.co.za. By completing the free online modules, you can identify the sticking points in your business and take the appropriate steps to address and correct them.
Note to the editor:
In the seventh episode of The Business Coach that aired on 12 August 2012, we saw how important it is to have a sound business partnership that works. In episode 7 we saw how to avoid partnership pitfalls from the start and remember in business, friendships second.
In the weeks ahead, SABC3 viewers will see a number of different issues that small business owners experience on the programme. Viewers can tune in at 4pm on Sunday, 19 August 2012 to see elements of sales management to motivate your team.
Anique Human | Project Worker
Magna Carta Public Relations
Tel: 011 784 2598 | Cell: 076 028 0807
Website: www.magna-carta.co.za
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