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Ending a Partnership Where Everyone Wins

Business partnerships don't last forever, but that doesn't mean the breakup has to be heart-wrenching.
October 24, 2007
URL: http://www.entrepreneur.com/article/218053

Last year, I ended a very successful, nine-year business partnership and sold my half of the company to my partner. We had built a well-established PR company, but wanted to take it in different directions. When we decided it was the right time to go our separate ways, we put our heads together to figure out a way that would work for both of us. There were no screaming matches in our office, no back stabbings and our staff wasn't put in an awkward position.

Sounds pretty simple and, frankly, uneventful. However, after a year's perspective on the whole process, I've come to realize how rare our experience was. It seems the only thing ordinary about it at all was that it ended.

Despite all the horror stories out there, you can end a partnership respectfully, professionally and successfully. And whether you're currently discussing a change in your partnership or may someday face one, here's what I learned that can help.

Figure out the real options. As you start to determine how you'll end the partnership, you need to figure out what your options are, not just what you think they are. Dust off the buy-sell agreement, if you have one, and have an honest discussion with your partners about what you're willing to do and what they're willing to do.

Start by using an outside firm to assess your company's value, then factor in everyone's risk tolerance for borrowing, potential and terms for outside buyers, as well as the impact on the business itself. This requires brutal honesty with yourself and your partners, and it's often best to consult with an outside facilitator.

Map out a best scenario, a worst scenario and a few in between. Once you determine your options, have all partners rank them. From there, determine what each person would like to happen, a few less favorable but tolerable options and one worst-case scenario that'll be your escape hatch. No one generally wants to go for the escape hatch, but you will if you have to. Just having it there keeps you moving forward and motivates everyone to come to agreement.

Keep it extremely confidential. I can't stress this enough--only people who must know should know. These types of transactions are notoriously slow and often die a few deaths before they're done. It can be extremely detrimental to the business if employees or customers know what the partnership is considering. These types of rumors can also considerably hurt the business's valuation, which can change or even ruin the entire transaction. So no matter how excited you are or how much you may want someone's opinion, keep things to yourself.

Use a professional mediator. This was probably the single best piece of advice my partner and I received. Unlike attorneys who fight for their client's side, mediators help people come together for the good of the group and reach a consensus. This perspective not only saves thousands of dollars in legal bills, but also keeps the process amicable. My partner and I had worked out as many of the details as possible ourselves, then brought the rest to mediation. What would have taken us months to reach agreement on, if at all, we ironed out in three hours.

Keep attorney involvement controlled. It may sound as if I'm against using attorneys, but on the contrary, I believe they're essential to the process. However, you need to carefully manage your attorney and communicate with him or her honestly and often. At some point, your attorney will be talking with your partner's attorney on your behalf and advocating for your side of the deal.

The typical rationale is to use your attorneys to discuss the difficult points because they're not emotionally invested in the business, but this can quickly escalate and create problems. Bringing all parties--attorneys and partners--together when issues arise will allow you to save time and find resolutions.

Find a way to depersonalize the process. In an ideal world, business shouldn't be personal; in reality, it's intensely personal, especially to entrepreneurs. When negotiating business partnerships, even the smallest details can become personal issues and get in the way. Know this going in and find a trusted colleague, friend or executive coach who can give you perspective. For every tense point, ask yourself, How would I feel if I were in my partner's shoes?

Once a business partner, always a business partner. When the deal is done and someone moves on, it's important to remember that you'll always be linked. People will look to all partners, past and present, for cues, and how you talk about each other and the business speaks volumes about each of you. Think of a marriage that ends--no one wants to hear ex-spouses venting about each other years later. Conduct yourselves as if you're business partners indefinitely. Keep confidences from the partnership, remain business associates if possible and be supportive.

A year and half after we first started the process of ending our partnership, my former partner and I are still pleased with the outcome. I was able to sell my half of the business at market value with agreeable terms. She was able to buy a business she already knew well and take it in new directions. And I used my former business as a launch pad for my current one, providing greater reach and, in turn, creating services that benefit my partner's business.