Asset Management & Recovery: Partners or Employees

Vicki Watzlawick recently wrote a blog asking about going into partnership with someone who approached her.

I have been involved in 2 formal partnerships over the past 5 years and looked very seriously at one other.  None worked out for various reasons.  

At the same time, I have been involved in quite a few Temporary Joint Ventures that have worked out very, very well.  There is also the broker/owner and agent relationship that can be kind of like a partnership in a team setting.  I'm not going to get in to that here as the blog could go on forever looking at all the different types of relationships.

One of my very good friends and very trusted advisors once told me "Rich, employees are better than partners.  When you don't have any work for them or when they are not pulling their weight, fire them."

Good advice!!

For the purposes of this post, I am going to define "Partner" as a co-owner.

If I were to look at a potential partnership with anyone for my current and main business, here is a short list of things to look at.  Please don't take this as me seeking a partner, but only answering a question through past experiences.

1. What will this partner bring to the table that makes me more money, makes my job easier and increases business?  This is business and about money.
2. Why do you want to go into business with each other?  If the partner is approaching me, what is the reason?  There needs to be a joint benefit.  The whole needs to be worth more than the parts.
3. How much money will both of us be putting into the venture?  Anyone I go into business with needs to have cash in and have skin in the game.  No skin, no partnership.
4. Are they willing to value their business and value mine?  There might not be a cash investment, but a stock investment.  This could be equal or not and will determine if cash is needed by one party.
5. Who is in control?  Who makes the final decision?  50-50 does not work.
6. How does the partner feel about spending?  Are they tripping over pennies in their current business?  If you don't think the same about finance and spending, you are doomed.
7. If your partner suggests downloading a partnership agreement from the internet, this is a sign of other bad things to come.  Each one of you needs to have your own attorney.  Don't trip over pennies.
8. Figure out an exit strategy up front.
9. Figure out an operating budget up front.  I investigated a partnership that would include a significant expansion.  Once the partner saw the budget, he didn't want to be a partner anymore.
10. Background checks.  If the partner is a drug addict and credit criminal you need to know up front.
11. Growth.  You need to have the same vision about where you are headed.  Small business or world domination.  This understanding will help answer many of the other questions.

There are more, but I am not writing a novel.

If these questions are not answered satisfactorily and give you a warm and fuzzy, hire someone you can fire if things don't work out.  It's a lot cheaper.