Business Law: Reflections on What Ruins a Business Partnership

By Nina L. Kaufman, Esq

Summer getaway vacations are a lot like business partnerships. You need an outlook of adventure, a mindset for cooperation, and an attitude of mutual respect. You also need to be mindful of your budget. It’s a journey that you’re sharing together.

Like vacations, business partnerships can spoil for many reasons. But the grounds often circle around one important (and overlooked) principle: that a business partnership is about two things — partnership and business. Women entrepreneurs tend to look to partnerships for the relationship benefits, not the monetary benefits. As a result, they don’t focus sufficiently on the business (money) considerations. In the spirit of reflection, here are some hard lessons learned (names changed or omitted to protect the embarrassed) about money and partnerships:

1. If you’re not earning enough, get out. If your start-up phase exceeds the gestational period for an African elephant, you may have to face that what you’re doing, how you’re doing it, or those with whom you’re doing it isn’t working. You must meet your personal expenses. Just as you wouldn’t dream of taking a salaried job that underpays you, so your business should not underpay you.

2. Corollary to #1: Know your needs as they grow and change. When Laila started her business, she was single. By the time it ended, she was married and actively trying to get pregnant. These lifestyle changes gave Laila a totally new perspective on work, the time she wanted (and could) spend, and the amounts of money she needed to generate to support her family. Your purpose in life is not just that you work for your business – your business needs to work for you.

3. Become financially literate. If you’re reading this, literacy isn’t an issue. You may not even remember a time when you couldn’t read. But few of us are taught to read numbers and financial statements. As unpleasant as the task may seem, it’s crucial to pay close attention to P&L reports and balance sheets – and seek outside guidance to fully understand what they tell you. Not looking carefully at the numbers is the equivalent of sticking your fingers in your ears and singing “la-la-la” as loudly as possible to avoid facing whether your business makes sound financial sense.

4. Don’t let friendship obscure business. This was my client, Hannah’s, Achilles heel. Years ago, she went into business with a dear friend. When business was tight, Hannah’s partner often needed more than his fair share. As Hannah had more personal financial resources and in the spirit of friendship, she let him have what he needed – after all (as she later complained bitterly to me), how could she say, “no, you may not have the money you need to make your mortgage/car/insurance payment this month”? “What kind of person would I be if I let a friend lose his house in foreclosure?” she cried. But the end result of her largesse was that to keep the business afloat, she either had to forego her draw (that is, rely upon her own savings), or dip into the credit lines she had acquired for the business (which potentially affected her own credit). By the time Hannah’s partner was willing to agree to a “money gatekeeper” (such as a bookkeeper), it was too late.

5. Understand – and don’t sugar-coat — your partners’ “money mindsets.” How do your partners handle their personal finances? Are they in debt? Have they ever filed for bankruptcy protection? Do they pay their creditors timely? Do they balance their checkbooks? These are clues to how they will handle financial dealings with you. How do your partners talk about money? Are they optimistic and prosperity-conscious? Or is there an undercurrent of “I’ll never make it”? Daniel once had a business partner who often quipped “I’m so broke, I can’t pay attention.” It took Daniel quite a few years to realize how deeply that mindset (negatively) influenced everything the partner did.

As you tootle down the proverbial highway of business, be sure that you and your partners have a clear understanding of both your business and personal financial goals. A business partnership must be about business to be profitable. If not, you risk having your joy ride morph into the trip to Hell.

© 2004-2010 The Legal Edge LLC. Nina L. Kaufman, Esq. is an award-winning business attorney, author, and speaker. Under her Ask The Business Lawyer umbrella, Nina offers easy-to-understand business law resources that protect small businesses and save them money. To learn more, and receive our FREE "LexAppeal" ezine, visit http://www.GreatBusinessLawTips.com  or contact Contact Us. This article is for your general information only. Be sure to consult with an attorney regarding your particular situation to make sure you get the specific advice you need.

Nina Kaufman, Esq. Award Winning Business Lawyer, Author & Speaker