What to do when a business partnership breaks up

Posted by XO Accounting on Feb 17, 2020 9:30:00 AM

The start of a business partnership is an amazing time. Generally speaking, both people are invested financially, emotionally and professionally in the business. It may be stressful to start a business but doing so with a partner gives you someone to share the responsibility and workload with. When you and your partner collaborate and work well together, a partnership can be incredibly fulfilling.

When a partnership doesn’t work—or when it stops working—the dream can easily turn into a nightmare.

Here are some tips for managing the situation in case your business partnership goes sour.


1. Identify the signs

It’s important to acknowledge when things aren’t working the way they used to. There could be a variety of reasons your partnership no longer works: the business isn’t doing as well as you expected, someone’s personal situation or goals have changed, or you disagree on how to run the business.

Some conflict in a partnership is okay and can even be healthy. It’s when the relationship breaks down that you may not be able to repair things. Are you and your business partner unable to communicate? Are you unable to reconcile your differences? Does one or both of you mistrust the other? Is your staff affected by your issues?

If you’ve answered yes to the above questions, it’s time to explore why your partnership isn’t working and determine a plan for moving forward. Unfortunately, in these cases simply taking a break from the other person won’t fix issues. You either need to find a way to work through the problems or consider ending the partnership.


2. Consider your options

Unfortunately, all options for ending your partnership will take time and involve complicated legal matters.

You could decide that one of you will buy out the other. This typically happens if the business is doing well and the only reason to dissolve the partnership is because the two people in it can’t work together. This means sorting out complex issues such as how much your business is worth, refinancing any bank loans and splitting collatoral.

You could also decide to sell the business. Typically, owners do this if the business is underperforming but stands a chance of doing well under someone else. This also takes time because the business must be valued, you may have to end rental agreements and both partners have to determine what they are owed from the sale.


3. Think ahead

The best thing you can do to prevent unnecessary nastiness or animosity during the breakup of a business partnership is plan ahead for it. A document called a Partnership Agreement ensures the decision making is done before emotions are involved, while cooler heads prevail.

Your Partnership Agreement sets out the terms of the partnership such as how profits are shared, how loans are paid, what happens if one partner wants to leave the business, what each partner’s responsibilities are and how losses are divided. This not only helps keep relationships smooth during the partnership, it provides guidelines for how to dissolve the partnership if things don’t work out.


Final thoughts

If you currently have a solid partnership but don’t have a Partnership Agreement, now is a great time to sit down with your partner and consider drawing one up. Even if things are great at the moment, it’s important to be prepared for the future.

In the best circumstances, you’ll never have to rely on any plans you’ve made for breaking up your partnership. But they’re there for you just in case you need them.

Please get in touch to find out how we can help your business.



Topics: sell your business, negotiation, business owner, business partnership


see all