Matthew Murphy is a Director of MPR Accounting & Advisors, a business that specialises in providing Virtual CFO and outsourced accounting services, as well as business advisory, tax, grants and funding services and to small and medium enterprises.
Why do partnerships bust up?
I talk to many business owners about partnership disputes and conflicts.
Much like romantic relationships, the big bust-up is often preceded by smaller misunderstandings which compound and magnify over time if not dealt with properly.
Like the way most of us conduct ourselves in our relationships, I’ve realized that we are all pretty predictable.
Below I’ve identified five common reasons why business partnerships crash and burn and what you can do to prevent this from happening.
One party working in the business believes that he or she is working harder or longer than the other/s and should be better remunerated.
This is a cracker. And it’s based on the perception that one party’s contribution is worth more than another’s. For example: one partner is the salesperson and the second is responsible for operations. Whilst both roles are required in the business, unless there is a clear definition and understanding of the value of each role, there can be disagreement about how much each is worth to the business and how much each should be remunerated.
Solution: Like all relationships, resentment dissipates with rational and blame-free communication.
Make sure that the above and below the line remuneration is clearly defined. Above the line is remuneration based on the role and its responsibilities within the business. Below the line simply put is profit share based purely on the fixed percentage of ownership and is clearer.
Confusion arises in the former when roles are ill-defined. Sit down and identify all of the roles within the business clearly. Write position descriptions. Designate each and every task within the business to each position, then it’s a much easier process to allocate remuneration for each position based on its commercial market value.
Act as if you are recruiting for the role. Going through this process methodically removes emotion from the equation and allows for a franker discussion of who should do what and then how much they should be paid.
The Ego Maniac/Control Freak/Power Hungry Lunatic
Some people just don’t play very well in the sandpit. We all have ego and we all have insecurities. Being in business is inherently stressful and a certain amount of such behaviour is just humans being humans – but what happens if it spirals out of control and threatens the business?
Solution: The best way to resolve such a situation is to delegate tasks and responsibilities to each position within the business, then agree on measurable outcomes.
It is really important to agree on the business’ hierarchy to prevent one person from wreaking havoc on the business. Even in the situation of equal ownership you can establish a board structure to which every party is accountable. This separates power and implements a structure for objective and constructive communication.
Or instead, appoint one person as mediator or chairman. In tough situations involving large personalities this can be the solid anchor you need to make sure the focus stays resolutely on the business.
Time and time again partners just don’t voice their vision for the business, their “raison d’etre” for being in business in the first place, beyond simply making money.
People often go into business together for financial reasons but end up spent because their values, goals and dreams are fundamentally misaligned. If one partner is in the business with passion, and the other solely for a potential financial gain, one is far more likely to call it quits when the going gets tough.
Solution: Hold a workshop with all of the partners to discuss this very point. Why is everyone in the business?
It’s amazing how many times I talk to various partners in a business only to find that they’ve never even thought to articulate and share their vision for success. What does success look and feel like for each partner? It’s essential to share and then define the “mothership” vision for the business as this really is the bedrock of potential success.
Risk and Fear
Some people love risk and have it as their default position; others are overly cautious and actually prefer stagnation to change. Most successful partnerships are a combination of the two - but if decision making is becoming a constant undisciplined tug-of-war, no-one will ever get anywhere, least of all the business itself. Conservatism is not the enemy of business but neither should it stifle all risk.
Solution: Discuss, agree, plan and execute strategy.
Hold regular upfront planning workshops. Question where you want the business to go and accept that there may be more than one way to get there. Structure your workshops firstly to open up dialogue but then always make sure you come out with an agreed plan and a timeline for execution. A workshop is a great environment to voice both ambitions and associated concerns for the direction of the business. In these sessions big picture ideas can be interrogated rationally in order to weigh up risk and its potential return
Bottle it up or spit it out?
All of the issues I’ve outlined have an underlying cause - most of us, being humans, are incredibly adept at avoiding confrontation.
Solution: If you want a successful business, not to mention a much more satisfying existence, put your fear to one side and simply voice your concerns in a non-accusatory manner.
Do this as issues come up – they may well otherwise form cracks in the working relationship which can then manifest into an implosion.
The cornerstone of any relationship whether personal or business is trust and respect, which cannot be built without open and honest good old conversation. Accept that no matter how strong your business relationship, challenging times will always be just around the corner.
Even if you are a small business, act like a big one. Companies have boards, which allow issues to be addressed and solved formally. Sometimes it can be a good idea for a small business to bring in a similar circuit breaker, a third party to help work through problems and mediate solutions.
Matthew Murphy is a Director of MPR Accountants & Advisors, a business that specialises in providing Business Mentoring and Board Advisory Services as well as Virtual CFO and outsourced accounting services, tax, grants and funding services to small and medium enterprises.