Partnership Concepts

Pros and cons of taking on a partner, and some thoughts about the corporate form of organization. March 12, 2009

How do I find a good business partner for my cabinet/millwork shop? I found one guy who is interested, but it has not materialized yet. I am seeking someone to run the business part and let me run the shop. I would also want the partner to take care of most of the marketing and selling. I already have an 8,400 square foot shop full of equipment. I just need some help with it now.

Forum Responses
(Business and Management Forum)
From contributor R:
I had a business partner once, lasted about 6 months. I bought him back out and found out his wife/bookkeeper had not filed any changes with the state. It cost me plenty, since the state now considered me a new business. As far as I am concerned, there is no such thing as a good business partner. A good business partner is just an urban myth. It's like being married, but much more difficult!

From contributor I:
Clone yourself.

From contributor S:
My wife is my business partner. We have been running our business for over 25 years and it works. I can't imagine going into business with someone I didn't know. I think to run a business successfully you have to have control. If every decision involves discussion, no matter who it is, it makes life that much more difficult.

From contributor B:
What are you looking for when you say business partner? If you are looking for someone to help out with the daily operations of the company, why don't you hire an operations manager?

A business partner is going to purchase part of your company from you and become a co-owner with you. This business partner will want to see your financials for the last several years and, depending on how the company is currently doing, will determine the ownership split.

You seem to be looking for someone to handle sales, designs, bids, marketing, customer service, accounting, A/P, A/R, payroll, ordering materials, etc. All of these vital functions have to be handled properly so that a job can get to the shop floor to be built. It sounds to me that the business partner is going to want to have the controlling interest in the company since he/she will be responsible for the success or failure of the business. Try to hire an employee to help run some of the "business part of the business" before you give up part of your company to a partner. If you need additional funding, borrow it from a bank or angel investor.

From contributor H:
Hire an office manager to keep track of the things you don't want to. You will still have to do the selling. You really don't want a partner. You want an investor to buy part of the business you have built and to assume part of the problems that come along with it. That will cost you money in future profits (he will want a return), time (you will need to explain your entire operation to him), and control over what was once all yours.

And lastly, if it does not work out, your business has suffered and you will have to buy what was once yours back from him, and I doubt he will take a loss. Don't let your current frustrations erode away what you have worked so hard to build. Partnerships in small business have a miserable track record. Keep it small and keep it all.

From contributor W:
I have to second the comments that are negative towards partners. I have been burned twice on this score, and the last time nearly bankrupted me. Well, in reality, it did bankrupt me. Turned out the guy was bipolar, and did really stupid things with money and contracts that put us in the toilet.

A business partner needs to be someone you know very well, and with whom you can trust your money and your business. If you can easily trust a person with everything you own, including your reputation, then that person is a candidate to be your partner. But not until then.

From contributor P:
I have had good luck with a partner, but he and I have been best friends since childhood and we are both in our 40's now. Every other one I have heard of has not worked out. You would be much better served to follow contributor H's advice and hire an office manager. Before you do any of this I would suggest reading a book called "The E-Myth" by Michael Gerber. It will explain why you feel the way you do about the office work and what to do about it. Just remember that after you hire someone, resist the urge to abdicate responsibility instead of delegating it.

From contributor D:
I believe in partnerships whole-heartedly. I have a partner who I met on referral as a friend of my uncle. We met over lunch in 1999. Within 30 minutes, we tied up the deal (partnership), went to work, and never looked back. Here we are 9 years later thriving and both making good money. I think the key is this: We are both honest, hardworking, and not greedy. We get along just fine. I know, I am pretty damn brave! (Warning! Do not try this at home!)

I also believe in partnering with other companies. This is a safer way to partner. What I mean by partnering with other companies is... Away with traditional methods of having 2, 3, or 5 partners all with rights to a percentage of a single corporation. This is a recipe for disaster unless you have the best attorney in the world and he owns a crystal ball. My suggestion is, imagine one big operation where one corporation owns all the equipment and building, a separate corporation manages the operations, a third corporation manages all sales and marketing, a fourth corporation does all the finishing work, and a fifth does all the installations.

From an outsider looking in, things would appear to be one single operation. In fact, it is 5 companies functioning as one. This model is perfectly safe for everyone involved. It is legal (at least in my state), and is practiced in big business all the time. Besides the benefits of having no legal ties between any of the corporation owners, this is probably the best-kept secret in business for protecting assets. Think about it! If the operations management company screws up royally somehow and gets sued, the plaintiff has no right of encumbrance to the assets of any of the other corporations, including one who may own the building, equipment, and 12 vans. The operations company being sued may only own the clothes they wear in to work! Get it?

Next time you go into a fancy restaurant, or a luxury hotel, do a little snooping. I guarantee that the owning company of all the assets is different from the managing company. This is often stated on a plaque near the front desk of hotels. I think I have had a few too many lunches with my attorney!