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Debtor Finance Blog

Small business partnerships – dangerous liaisons

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I wonder how many people are going to disagree with what I have to say in this week’s blog? In fact I have to say that I’m already really looking forward to the responses I might receive, especially if they disagree, because I love to hear other people’s small business stories, and I really enjoy sharing the trials, the challenges, and at the end of the day, hopefully the victories.

So here I go again, exercising my ‘blogger’s right’ and putting my opinion out there – I don’t like small business partnerships.

When small business partnerships go wrong – and they go wrong far too often – they can lead to months and even years of stress, expensive legal hassles, and even the death of the small business in question. Partnerships gone wrong are responsible for putting plenty of people off small business for life, sometimes sending them back into the workforce as employees resolved to never again make the same mistake. Burned by partnerships, but too scared to go it alone.

I’ve been a small business owner for nearly twenty years, long enough to have seen the good, the bad and the ugly of business partnerships – mostly the bad and the ugly. Are small business partnerships always a disaster? Of course not, but once again, as a blogger I get the chance to relate my experiences and air my opinions without them necessarily having to be popular! It’s simply what I’ve seen, what I’ve dealt with, and how it’s shaped my thinking today as a small business operator. Your experiences may have been very different, so if what follows gets you fired up, by all means get involved in the dialogue and leave your comments below for everyone to reflect on.

Anyhow, back to small business partnerships. My advice, based on my own experiences, is to avoid them at all costs!

Time and again I get into conversations with aspiring business owners who talk about going into business in partnership with their friends because ‘it’ll be more fun that way’ or because ‘he’s great with numbers, I’m more the creative type’, or even the classic ‘because I don’t have the money, but my relatives can help fund the start up’.

Do not get into business with friends or family. No, I haven’t dug down into the statistics, but at an educated guess I reckon this sort of endeavor would lead to a failure rate of about 50 percent. Failure of the business, and a lasting fracture of the family or friendship in question, too. Stress, disagreements, flat-out arguments and problems. Sure, now and then a partnership like this will work. I suspect that these are the ones that really stand out, because there are so few of them! My advice is that if you’re considering getting into a business partnership, stop right now. Think very carefully about why you really want to do this before you commit to something that may cause you a lot of pain…and be very difficult to escape from when it goes wrong.

  • But I need the funding!

Really? Because if the only reason you’re going into a business partnership is to access funds, you should think about whether this can be achieved some other way. It can be very hard to turn down cash, especially when a potential business partners is ready and more than willing to hand it over, but chances are in the long run you’ll live to regret it.
Spend time looking at alternative ways to access the money you need. Maybe a loan you can repay with interest is actually a better option than cash for part of your company. And of course if you’d prefer not to borrow money, Debtor Finance (also known as Factoring) can be a good choice. There’s a few Debtor Finance companies out there who take care of start up businesses – CashFlow Advantage is one of these Factoring businesses– and Debtor Finance means you’re not bound to give away 50 percent of your profit. I can tell you from first hand experience that sharing profit with a business partner sucks!

  • But I hate doing the books!

Hang on a moment…going into business so that you can avoid doing bookwork? If that’s your best motivation, you’re definitely going about this the wrong way! And as much as you may hate to think of it, turning away from bookwork and leaving it entirely up to your business partner is not exactly going in ‘eyes wide open’. I go on about the importance of good accounting all the time in my blogs. Hell, I even post YouTube videos dedicated to the subject. No matter what your role in a partnership is, you can never afford to look away from the books, you must have a solid understanding of your business finances. If you’re not brilliant at bookwork, chances are you need a good bookkeeper rather than a business partner.

  • But it would be so much fun!

Imagine this. I’ve had a few glasses of wine. (Hard to imagine, I know, but work with me here…). I’m talking with a couple of mates who have decided to go into business together, and they want me involved. One had the idea, one had the connections, and I had the funding. Happily, at this stage my wonderful wife – otherwise known as the voice of reason – took me aside and told me that if I valued my friendship more than a business opportunity, I should say ‘no’. And I’m glad I did. I dodged a bullet. My two mates went into business without a clear understanding of their responsibilities. They didn’t properly form a company – relying instead on a handshake deal – and it ended badly, complete with a legal document and two mates who today barely talk to one another. Doesn’t sound like much fun after all, does it?

  • But my potential partner has great connections!

Connected, maybe…but are you sure it’s with the right people? People who can lead to great contracts and deals? If it’s true, it sounds like it’d be hard to go wrong. But you might serve yourself even better simply to ask Mister (or Miss…) Connections whether they’d be happy to be paid a finder’s fee of some sort for these connections, or a flat fee, perhaps even a percentage of the contract. It might be the best way for both of you to profit from working together, without the potential complications of a partnership.

  • But I have a great idea and don’t know how to market it!

Then consult with a decent marketing expert or PR person. One great business idea is not everything you need in order to enter into a business partnership – or even to start a business. Do you have a business plan? It should include a strategy regarding how to market your product or service. Starting a business partnership just because you’re short on marketing knowledge is like marrying a plumber because you have a dripping tap.

In summary…

If you’re ready to call me negative, pessimistic, narrow-minded or grumpy by now, then that’s okay, as I’ve mentioned before, these are just my opinions…and you know what they say about opinions. But they’re based on my experiences in business partnerships over nearly two decades, so I feel like they’re worth something.

I’ll say the same thing to anyone considering a business partnership – don’t walk away, run! Be brave. You don’t need anyone to hold your hand. Have a crack at going into business without a business partner and sure, you might have to take many aspects of business upon your own shoulders, but you’ll also enjoy the freedom of never being painted into a corner by a partner, never having to split profits, and never having to tip-toe around someone else’s ego or emotions. What’s more, facing every aspect of business first-hand, you stand to learn everything there is to know about business, including making difficult decisions off your own bat – which, by the way, can be every bit as satisfying as it is occasionally daunting.

And yeah, I know it’s not hard to tell that I was once in a business partnership that I am now very glad to be out of! Perhaps your experiences have been more positive, and your opinions on business partnerships are different to mine. Either way, I’m looking forward to your comments and feedback.

Wishing you a great week in business, - See more at: http://www.cashflowadvantage.com.au/_blog/Cash_Flow_Advantage_Blog/post/Small-business-partnerships/#sthash.mQVd9WkZ.dpuf