Partnerships and Other Ways to Share Shop Space

The pros and (mostly) cons of partner-run businesses. October 27, 2009

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.

From contributor J:
Sole proprietorships are common because they happen almost by themselves. If you simply start doing business by yourself, you are a sole proprietor by default. Similarly, a partnership happens by default when you start working with partners. The relationships between partners are trickier so it would be smart to set up some sort of formal legal agreement as to how those relationships will work, but if you just start working as if you were partners you are automatically in a partnership.

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.

From contributor W:

Run from the partnership, or...

You now have 8 directors for a board. Vote in a president, incorporate, see if the president hires some of you.

From contributor H:
Partnership = Marriage. Over 50% of them fail with just 2 people involved. A BBQ is not a place to get to know your partner in business. Want to know how they really are? You'll find out when it comes to money, time and delegating tasks.

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.

From contributor B:
A partnership is only as strong as the agreement that binds the partners. The six of you will all have to be strong leaders for this to work well. The only way I can see this working well for all six is to establish an unbiased 7th company that is run by the six equal partners. The 7th company must be a profit seeking enterprise that funnels business to one of the other six companies.

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.

From contributor T:
Another sole proprietor (by choice) chiming in. To further expound on contributor H's comments, I would stand back and ask "What's in it for me, and what's in it for them?" If you see this as a way to get sales you don't have, help when you need it, more available space and machinery, etc., then it may be to your advantage. Much like a marriage, you have to determine what each person brings to the relationship.

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.

From contributor M:
Would you operate as 8 separate companies all sharing the same space, or all as one company? What do you do if two of the people dominate the time in the shop? What do you do when someone is not pulling their weight, sharing in the expenses? How do you orchestrate running 8 jobs at the same time with 8 different bosses? How do you handle storage of materials, and who owns what? One guy uses up all the hinges and doesn't replace them, and you go to use them and they are all gone. It is hard enough to run your own shop, and keep on top of everything, but having to think for 7 other people would be a recipe for disaster.

From contributor O:
I had a partnership once and worked for a set of partners once. Each one failed. The partners I worked for had some success for a while. One was good at sales and one was good at systems and production. There were clear definitions of what their responsibilities were. It failed when the sales guy quit doing what he was best at and wanted to hang around the office more.

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.

From contributor C:
Our business went from a partnership back to being only family owned. In the end, partnerships rarely work out for many different reasons. One is will to sacrifice a different amount than the other, or they want the company to run in different directions.

From contributor U:
You might consider looking into the workings of the multiple co-ops and woodworking guilds which have been cropping up about the country. Some are buildings which have dedicated rental space for multiple woodworkers. Each woodworker has his own gig but they share many tools and amenities. They help each other out on an as needed basis. I think the guilds operate similarly but start with a group of artists who find space together and go from there sharing portions of amenities, which spreads some of the fixed costs (internet, utilities, etc.) out so basic overhead is reduced.

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.

From contributor G:
What does "to participate in the conception of a new business with several other cabinetmakers and furniture makers" refer to?

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.)

From contributor N:
Partnerships are generally formed by one person with money and one person with experience. After six months or so the roles are reversed, the one with the money now has the experience and the one with the experience now has the money. Which one are you going to be?

From contributor D:
Based on my own experiences with a partner, I would rather parachute naked into concertina wire that is surrounded by a blazing inferno of napalm while being shot at by skilled marksmen. Much less painful and the end result could not be all that different.

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.

From contributor I:
Contributor D first statement pretty much sums up my experience. Pointers below...

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.

From contributor R:
I ran a bunch of businesses. I have coached CEOs. Partnerships are generally a disaster. I would say over the years I have seen 200 business partnerships intimately, and of those, exactly two are fully functioning, vibrant businesses.

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.

From contributor G:
May I take off my woodworkers hat and as a still licensed attorney who works with the newly incorporated (or otherwise organized) and request a copy of your operating agreement? Whatever a prospective new member would be given detailing rights and responsibilities is what is desired. I am interested in how you have made it work. Clearly it must require careful selection, but I am equally certain that you must have an unusually fine written set of rules.

From the original questioner:
I'd like to say thank you to everyone who responded to my post. I don't think I'll be partnering with anyone right now (maybe never) after the suggestions brought out on this thread. Since posting my original question, I have gained another opportunity to simply rent space and collaborate (for lack of a better term) with an associate whom I have worked with before and know fairly well in a professional capacity.

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.

From contributor R:
I am glad to share the operating agreement. Please realize that this is what we did for our members, and is dated from 2005. Our LLc documents are for Massachusetts only, and may be outdated, so I have not included them. I am not a lawyer, so this is not legal advice, just information so that you can make better decisions about the business form and how to handle partnerships and cooperatives.

To download the file, right click and choose "save target as". The document is in Acrobat PDF format. Download the latest Acrobat Reader if required. To view the article, left click the link below.

Operating Agreement (PDF)

From contributor Z:
I'm the one that started the shop sharing thread farther back. Initially, this guy moved in to share half the space for half the rent. His bander was a monster and very old, so I agreed to let him use mine for a weekly fee. He then landed a really big cabinet job and I have still been without any work for 8 weeks. He is using the complete shop and most of my machinery and was so backed up that I offered to work on his project for a weekly salary and a 500.00 week fee for full use of the shop and he pays all the rent, electricity and waste disposal. My only costs are my shop insurance at 240/month plus my phone and 40.00 month for my water cooler/heater.

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.