Strictly Business

Monday, Feb 18 2013 12:00 PM

RUSS ALLRED: Business partners, peons often one in the same

BY RUSS ALLRED Contributing columnist

Partnerships are problematic. Often a partner in business is also a partner in life. The US divorce rate is at 50 percent and most marriages fail over disagreements about money.

It's no surprise that business partnerships frequently fail. Business owners may find themselves at an impasse because they can't seem to agree with their partners. Perhaps these observations about partner relationships will help move your business forward.

Many marriages begin because of an immediate need rather than shared values. Consider the number of wedding chapels in Vegas. Business relationships are also born of current needs with little thought of future goals. In the early years, the partners concentrate on making a living. Many become bored with the monotony.

We can often stimulate a better relationship by helping the partners align on a future objective. Growing the business can be motivating and help the partners work together, much like the desire of a couple to see their child graduate from college. The daily drudgery can be overlooked when dreaming of a mutual accomplishment.

Some partners argue about their respective roles. Partners are often drawn together because they have a similar interest, but you can't optimize an organization if everyone does the same thing. There must be a division of duties so everything gets done. If both partners only did the dishes, the lawn would never be mowed.

In small businesses everyone has to work, even the investing partners. This relationship can cause confusion. It is possible to pay for labor and compensate a partner solely from profits. The managing partner of a local business is frustrated because his partner is not a very good salesman. Schmoozing is an acquired skill, but scheduling is also important and the introverted partner is best suited to it.

One possibility for the team is to terminate the partner from his daily duties while retaining his share of profits. I suggested that the partnership buy a competing business. In one transaction, sales will double as will the need for administering receipts and deliveries. Buying a business will allow the underperforming partner to retain a meaningful occupation. Profits will also increase. Many problems are averted when the business grows sufficiently so the individuals can specialize.

Some think a partner shares in profits, while the peons do the work. Recently I met with a business owner who has endured an underperforming partner for 30 years. The minute he invested in the business, he stopped doing his job, thinking that owners needn't work.

Almost every partnership can benefit by drafting a partnership agreement. This charter exceeds a statement of ownership percentage and defines what each partner must do to earn an agreed salary. Partner or peon, everyone should earn what they are paid.

-- Russ Allred, MBA, is a business consultant and author with Sunbelt Business Brokers & Advisors. These are his opinions, not necessarily those of The Californian.

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