Question
I was recently invited to participate in the conception of a new business with several other cabinetmakers and furniture makers, some of whom I know fairly well, and a couple I don't really know at all. There are six of us in all. After a couple of meetings and "get to know one another" BBQs, I'm not so sure I'm comfortable with the idea of teaming up with guys I know almost nothing about. Generally our craft is ideal for working solo, as is evident in the fact that so few shops are partner-owned. From what I've seen here on WOODWEB, most shops seem to be in the sole proprietorship category (maybe for a reason). Having never been a shop owner myself, does anyone have any direct experience with partnerships in this industry and if so, is it worth the headaches?
Forum Responses
(Business and Management Forum)
From contributor S:
A partnership of 8... No way, forget it, run! Partnerships are like a bad marriage. You will get screwed, and no one will care if you enjoyed it! Very few business partnerships work in the long run. You will be unhappy sooner rather than later. Consider a corporation if you think it might work, and get an attorney now rather than later.
The problem with both sole proprietorships and partnerships is that the people involved are the business entity, so your personal assets are exposed. If your sole proprietorship gets sued, you can lose your house even if the house has nothing directly to do with the business. Worse, if you're in a partnership and a partner gets sued, you can lose your personal assets even if you didn't cause the problem that the partner got sued for.
Corporations are rarer because they take time and money to set up, but they create a bright line between business and personal assets. You really should look into them. My guess is that LLC will be the way to go.
You now have 8 directors for a board. Vote in a president, incorporate, see if the president hires some of you.
You were invited because you have something someone in the group does not have.
I, like many here, am in business alone because I want to be the boss and do what I want and not share or answer to anyone but my clients. Sounds to me like someone wants to be in business but wants everyone else's knowledge, connections and tools.
Go it alone. Succeed or fail on your own merits, not someone else's. There are benefits to both.
This type of partnership could work very well but it will require all partners to have their priorities in order. Their first priority is the success of the 7th company. Their second priority is the success of their original company. If you don't know all the people involved well enough you might be making a huge mistake by entering into a partnership with them.
Who's in charge, who's buying what, whose money is being used, who winds up being subservient to whom?
You can go it alone, and create a LLC for yourself or even incorporate, if you haven't already done this. This will help protect your personal assets from professional liability.
Speaking of liability... In a situation where there is an excrement-fan collision, who is going to be liable? Some things are just better if you do them by yourself. This business may be one of them.
I was partners with a close friend. It failed when we both decided we wanted to build the business differently. I wanted to get bigger, he was afraid to. Another problem was a clear delineation of the work and sticking with it. We started out okay but soon it evolved into doing whatever needed to be done. I estimated, he estimated, I ordered material, he ordered material. He had customers, I had customers. He was never there when I needed help. We finally just split up.
If I were you, I'd get everything - and I do mean everything - written down, have legal documents drawn up, etc.
P.S. I would never do it again.
There was one in Chicago; not certain if they are still up and running. There is one in Philly, and there is one I just found out about in Punta Gorda, FL which I am going to check out myself soon. I'm sure if you contacted the right person they could give you more info on how they operate and see if it would work for your group.
Are you starting a shared shop, everyone on their own, everyone doing business under one banner, a commune, a collective, a partnership, an S-corp, a publicly traded corp, equal shares? Something where one guy owns and everyone else is an employee? Little hard to comment on without knowing just what form of "thing" you are all proposing to mutually do. (I agree with the posters above that it doesn't seem likely to be a good idea. If for no other reason than the first time someone notices that their share is not proportional to their work.)
Now, were these 8 different people to explore the idea of setting up a new corporation (or LLC) consisting of many different skill sets and all contributing money or other capital (in the form of tools, equipment and/or material), all supervised by attorney(s), then maybe it is not such a bad idea. It all depends on what the goal is and clear expectations all around.
A. Do not partner with a close friend/relative; you won't remain friendly for long.
B. Draw lines (contracts) in the sand from the beginning. (Who entered with what equipment, tooling)
C. Have a good exit strategy - what you take, leave behind.
After my experience, found me a nice big building, designed it to suit me, and became my own sole proprietor. When I shut off the lights for the night and return the next day, everything is exactly how I left it.
I am out of that business now, and have a shop with 6 others in Boston. The shop is an LLC, and is taxed like a partnership, but is run like a corporation. Our circumstances are fairly unique, however, since we all have different client bases and each person works as a one-person entity, while sharing the heavy iron and space. When we need more than one person on the job (for example, last summer for 20 dining room chairs), two or three work together to get the job done, the job gets billed by the shop, the customer pays the shop, and the shop pays us on 1099's.
Everyone gets a vote, there is a managing member, and people can be admitted only with majority approval, and removed only with vote of 66% of the LLC members. CWB magazine did a profile on us last year.
Stay away from a straight partnership. If it is a group of people who can all contribute, think about the LLC format. If it is a group of people who may not get along, or if you have any doubts, those doubts will only get bigger in time. Our group is all working together for the betterment of all, and we all contribute to new equipment, repairs, etc. without thinking much about "what's in it for me," but rather for the group as a whole.
Details: 7 people, 5000 sq ft., 5 year lease, each has bench space, each contributes some equipment to the group when they come and may take it when they leave (but generally they leave it). Formal Massachusetts LLC, with articles of incorporation and bylaws that govern our activities.
Also, contributor R, I am very interested in your experience with a cooperative shop situation. The part of the country where I currently live has nothing like a woodworking co-op and I think we could use something along those lines. Thanks again for letting me tap into the collective experience and wisdom found here on this forum.
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This has been going on for a month and I have been able to catch up on my expenses, and although it's harder working at the bench all day building cabinets at my age (58), the bills are getting paid and I am not depleting my savings anymore.
In the meantime, I have been watching him and do not like the way he treats his employees who are working in my shop or the delivery people who help to offload sheets. He has a short fuse and is on COD only with all suppliers. He also skimps on quality and changes his mind often on designs as it suits him.
I could not be his partner after seeing him in action these few weeks, although he has the ability to network and land big jobs and I am benefiting. He also appreciates my organizational abilities and respects my on-time weekly payments. I have saved him time and materials and have taught him and his workers processes that they would have never picked up in a hundred years.
Some will say I gave away too much, and that may be true, but I feel that I have also been paid fairly for my time to date. I will not continue in this way for long as I am not making the profit that I was on my own. This week I will be taking off 10 days for the Passover holidays and we will see how he manages while I'm gone.
As soon as some jobs come in, I will return to either sharing the space and machinery or space only. I have never had a partner in 30 years and this experience has taught me a lot with little commitment or repercussions. Be careful and keep your eyes and ears and mind open.
