Three friends in the bar sit down to start their new business . . .

Many people starting or expanding businesses in Grand County tend to be involved in partnerships. To make things simple, I’ll call a partnership any venture that has two or more people as the owners and managers.

It’s inevitable, really, that many businesses get started as partnerships. Two or three friends get together and decide they could do on their own what they see happening in other businesses. They pool resources, labor and ideas and get the business going.

That’s fine and dandy. But partnerships, especially informal partnerships, can create real problems for the partners down the road. Friends can become enemies and longstanding happy relationships can sour. That’s because when money is involved, friendship only goes as far as the bank.

There are ways around these problems. I know it may seem like overkill for partners who are just getting going with a lawn mowing business, for example. But such “little” service businesses here in Grand County tend to grow, expand and diversify, with that little “hobby” business suddenly becoming a real money maker.

And when real money is involved, whether on the black or red side of the ledger, it’s really wise to have agreements worked out ahead of time.

So, first, when partners are getting serious about their business, I think it’s extremely important to have a partnership agreement. Attached with that agreement should be some sort of operating plan. And if the partners are wise, they will hire an attorney or attorneys to get this agreement on paper so that everyone knows what to expect.

For example, let’s assume that said business has a strong bank balance after a busy winter season and partner number one wants to tap into that cash for a great spring break getaway. That’s OK except for the fact that partner number two might think that some of that extra cash should be set aside for future capital purchases or emergencies. And suddenly, with partner number one’s vacation trip to Cabo suddenly threatened by partner number two’s frugality, the potential for discord arises.

This is assuming that the partners are 50/50 owners in the venture and have equal say in the course of the company and its cash and assets. This is where a good partnership agreement will have spelled out how cash distributions are allocated, probably with a clause that stipulates strong communication between the partners about company priorities, etc.

So weekly or monthly meetings should be required. And perhaps a cash investment or distribution policy agreed upon. That’s easier said than done.

Now there might be partnerships in which the owners are not 50/50. Maybe one partner has 30% and the other has 70%. This is easy in one sense, because the majority partner has the final say in such situations. But that can surely spell trouble when it comes to big decisions, especially when it comes to profits or debt. A partnership agreement would still help a lot in such situations as it would temper expectations for both parties.

Make sure an accountant or wise bookkeeper is involved in the process of drafting the agreement. Any such agreement should include how business dissolution will take place, how the business is valued, and how shares in ownership could be sold or transferred. Partners don’t always stay partners forever.

I also think a basic operations plan that spells out duties and responsibilities for the partners is critical. It can be as basic as who turns on the lights in the morning or who’s responsible for paying the bills. But it should be made clear so that conflict doesn’t ensue.
Partnerships are good for starting ventures as they can reduce the impacts of getting started in a financial and physical sense. But having a strong partnership agreement in place for partnerships is just good common sense.

Such agreements are good for business and friendships.

Patrick Brower is the Enterprise Facilitator for the Grand Enterprise Initiative. He offers free and confidential business management coaching to anyone who wants to start or expand a business in Grand County. He is also the author of “KILLDOZER: The True Story of the Colorado Bulldozer Rampage.” He can be reached by calling 970-531-0632 or at patrickbrower@kapoks.org.