Partnerships - set them up for success!

There is an unfortunate fact that partnerships can make for some seriously sticky business situations. They typically start with grandiose plans to conquer the world alongside your best friend, cousin or workout partner, and all too often end with hard feelings, severed relationships and in some cases a lawsuit. Fortunately, much of this can be prevented with a properly drafted partnership agreement.

Two common reasons partnerships fail are differing expectations around workload and business performance.

Expectations surrounding the workload

I have seen many micro gyms with multiple partner scenarios, where each and every partner is frustrated. It seemed to make sense in the beginning for a group of 3 or 4 people to each put $15K in the business (shared financial risk), but after a year or two problems start to arise and resentment mounts. One partner feels like he is doing all the work while the others float in and out coaching a class here and there. Additional frustrations arise when partners can’t see eye to eye - decisions are hard to make when multiple people disagree about the direction the business should take.

It is important to delineate roles and responsibilities up front. Is one individual going to be doing all of the coaching while the other takes care of backend items like the website and blog, maintaining the books, paying bills, etc? You can save a lot of headache in the beginning by outlining each partner’s responsibilities.

Expectations surrounding business success

It is also important for all parties involved to discuss expectations with regards to the performance of the business. Many folks new to business begin with the notion that their “winning idea” is going to instantly take off and that money will magically begin to pour in. Having the “what if it doesn’t work out” or “what if it takes longer than we expect” conversation can help mitigate future frustrations.

The bottom line - Put it all in writing

1) What are each person’s responsibilities/job description? Who is measuring the performance of each partner and what happens if one partner is underperforming?

2) What is each person contributing financially?

3) What will be the process if one partner wants to exit early? Will there be any provisions for compensation for her initial financial contribution?

4) At what intervals will you sit down and evaluate the performance of the business to determine if you are on the path you intended?

5) Who are the partners? What role will the spouses of the partners be playing? (This is a tricky one, especially in a micro gym where spouses are frequently involved - a partner’s spouse will often wiggle in and try to be another voice, for good or ill.)

6) How will you raise capital if you don’t have enough between you? What is each person’s comfort level with taking on debt?

7) How will decisions be made if you disagree?

Depending on individual circumstances there will be many more items to delineate in writing. Be sure to bring up every possible contingency and lay everything out on the table before you open your business together. A good lawyer can help with this - don’t be frugal, it could save your relationship! You may find early on that your prospective partner(s) has completely different ideas about what their role in the business will be. Hash all this out early on and you will both be happier. Or who knows, you may decide to just go it alone.