In my small business workshop, I always advise people not to enter a business partnership, but to establish a company structure if they want to go into business with anyone else.
The frequent expressions of surprise this advice generates has led me to put the reasons here for all to see.
Noted financial advisor Noel Whittaker writes: “Partnerships sound like fun. You and a friend go into business, make heaps of money and then both live happily ever after. Unfortunately the reality is usually the opposite and you end up deep in debt and on bad terms with each other.”
He gives an example of two women who decided to go into a dress shop partnership. Kay knew fashion but had no money; Margaret had money but no great fashion knowledge. They signed a 5 year lease and bought stock using the second woman’s credit rating. He writes:
"The shop never became profitable and the losses grew. The raised only [part of the money needed] at the closing down sale so all the creditors looked to Margaret to make good the shortfall. After all why chase Kay – she had no money.”
The fact is that each business partner can be held solely liable for debts incurred by the partnership.
And this liability applies even if you are taken for a ride on purpose.
Cairns business consultant Andrew Griffiths tells how he was once burned by a partnership that went wrong due to unknowingly partnering with a con artist:
“We owned a busy retail shop on a major highway [which] was starting to come good. It was my turn for a holiday so I … headed to sea for a couple of weeks. Feeling refreshed and relaxed I arrived back on dry land and rang my partner to see how business was.
“To my surprise the phone was disconnected… The day after I left my partner had a huge clearance sale and sold everything – shop fittings, the lot. He had ordered a pile of stock the day after I left so he had plenty to sell and he walked away with a couple of hundred thousand dollars. I was left with the bills.”
OK, you say, he was conned by a crook – it couldn’t happen to me…
So let me give you a third and final story that happened to someone I know personally.
A hairdresser and a beautician started a hair and beauty parlour partnership, which became a thriving small business. The beautician’s husband, with her knowledge, borrowed a large sum from the joint business bank account, which they forgot to tell the hairdresser about.
When the books were discovered to be well out, the beautician accused the hairdresser’s father (who did the books and had largely funded the shop’s establishment) of stealing from the account. End of friendship … and end of shop.
There are many stories like these. My advice is not to sign into a business partnership unless you happen to be already married to or legally defacto with your proposed business partner.
Sure, things go wrong with personal relationships too. But your business activity is then based on the foundation of a committed relationship in which both have an equal stake
The Risk Factor In Small Business Partnerships - To learn more about this author, visit Susan Regier's Website.
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Susan Regier
(Visit Susan's Website)
From new business startups to national ad
agency accounts, Susan Regier helps
businesses to get their message
understood. Since 1997, she has provided
professional copywriting for a full range
of marketing material through her company,
Vantage One Writing. Plus she is the
publisher and editor of www.Network
ingToday.ca an online ezine, which is
a valuable resource for businesses.
Susan leads marketing and networking
workshops for new business start ups at
the Small Business Centre in London and in
Sarnia. She is a Creative Writing
instructor at Fanshawe College and has
instructed numerous corporate
professionals in writing and networking
workshops. Susan can be contacted at
519.471.8726 or by email at susan@va
ntageone.ca. Visit her Web site at www.vantageone.c
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