Business Partnerships: Breaking Up is Hard to Do!

How to avoid a nightmare of an experience with your business partners.

“It takes two wings for a bird to fly” – Chinese Proverb

Al and Mort, their employer in upstate New York failing because of overseas competition, found themselves unemployed for the first time in 20 years. At the time of their dismissal, each received a modest severance package. A few weeks later, unable to find the “right” job, Mort asked Al to go into business with him.

He told Al of a piece of commercial property located on a highly traveled highway that was available and proposed they buy it and build a storage rental center. It would be the only such center within a radius of 25 miles. The area was growing, with new apartments and condominiums being built, and Mort was certain there would be a demand for short- and long-term storage rentals.

Al shared Mort’s optimism and agreed, although he expressed his reluctance to remain in New York. Using their severance money and savings, they incorporated, bought the lot, and borrowed on the equity in their homes to build the center and finance their new business.

Mort’s vision was correct. Within a few months after opening, only three spaces were vacant. It was a success. As partners, they worked well together. Except for a part-time employee on busy Saturdays, they managed their business without outside help. From the profits, they were able to take home a modest, but adequate income. They felt lucky.

After a few years, Al became bored. He grew restless waiting in the office for the occasional new customer. He wanted more action – he did not enjoy office work. He discussed his feelings with his spouse. Perhaps, she told him, it was time to make the change in their lives and move to Florida. If they sold their half of the business to Mort, they could pay off the mortgage on their home and head South with enough money to start a new life.

It was a bitter meeting. Mort became angry; feeling betrayed by Al’s abrupt actions. After a few weeks of emotionally charged discussions, they reached an agreement. Mort would buy Al’s half, using loans with the business pledged as collateral.

The day Al signed over his ownership and picked up the check was the last contact the partners had with each other. It was not a friendly parting.

The burden of the debt was troublesome for Mort. Besides the payments of principal and interest, without Al, he had to hire employees. The fun and sense of accomplishment were gone for Mort. The parting left him bitter. Customers noticed the change in his attitude; he was often surly and not pleasant to be around. Mort felt betrayed by his partner who he had believed to be his best friend.

The following year, a group of local businesspersons, sensing an opportunity, decided to open a competing center. The impact was immediate. The new facility was offering lower rents with a more pleasant environment. It was not long before Mort’s income declined. With the debt payments and the loss of business a financial crisis was brewing. The more customers he lost, the angrier he became, blaming all his trouble on his former partner. Three years later, the bank foreclosed on the mortgage. The successful business became Mort’s nightmare. Al walked away with the money; Mort got the debt.

Mort’s nightmare need not have happened. Had there been an understanding and an agreement explaining the possibility of parting company, an equitable arrangement could have been crafted to protect both partners.

We can learn from Aristotle, the Greek teacher and intellectual who saw harmonious relationships as critical to well-being. He concluded that successful “partnerships” are a basis of living well. If you are thinking of going into business with a partner, remember this: “Who you select to be in business with is as important as selecting a business to be in.”

(C) Copyright 2001 Dr. Paul E. Adams. Syndicated by Paradigm News, Inc.

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