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BY RUSS ALLRED Contributing columnist
"Howdy partners!" This column was inspired by Eric Powers, a local business executive. He has many clever sayings he refers to as "rural-isms," including "even a blind squirrel finds a nut once in a while."
Many partnerships turn a blind eye to the potential of reorganization and the inevitability of death. In the book "Good to Great," one of the characteristics of good companies that become great is that they "get the right people on the bus and in the right seats."
The evolution of a business partnership often puts people in positions to which they are not well adapted. This occurs because of the fallacy of self-employment or the mistaken notion that a business owner must work in the business.
A better notion is that a business owner must work in the best interest of the business. If the business can make more money by a partner stepping down and hiring a better-adapted professional, then say "happy trails" to the unproductive partner. The non-working partner still earns their percentage of profit but they don't take a salary.
Recently, I consulted with a business owner who was grappling with a partner who had "retired in place." The older partner was in his sixties, but had already abdicated most of his responsibilities. Still he collected a wage every month. Their partnership agreement allowed for the remaining partners to buy the interest of the retiree, but they were struggling for money.
The next option was to sell the partnership interest to a new partner. In this case the remaining parties should hedge their bet and find a working partner who can add value to the team. Every partnership should have a written contract establishing a buy-sell agreement to accommodate the inevitable decline or death of the owners.
One local business achieved its best sales figures in 2010. Sales have declined each year since then as the owners age. They could have sold the business for much more money three years ago, but "they wanted to milk the cow before they butchered it."
The best time to sell or step down is at the end of a planned exit strategy. The partners should set a goal of revenue and profitability, set the number of years to achieve that goal, then sell or retire when the time is reached. "Dying with your boots on" can be unpleasant to the other partners. By following the exit plan, you show some "grit" and exit on your own terms. It is better to "cowboy up" and do the right thing.
-- Russ Allred, MBA, is a business consultant and author with Sunbelt Business Brokers & Advisors. These are his opinions, not necessarily those of The Californian.