What to consider when buying a business with partners

Editor’s Note: I stumbled across this assessment of the challenges of business partnerships while on vacation in Arizona. It was in a copy of the Flagstaff Business News, open to Professor Thomas’s column on a side table in a hotel lobby. When I contacted Paul, he was delighted that we wanted to share his wisdom with Canadian contractors. 

By T. Paul Thomas

Northern Arizona University

Over the years, former mentors and business associates send me great stories that I use during my lectures at Northern Arizona University. Marsha Morgan was my very first manager out of college and to this day we are great friends (which is a column for the future about the importance of maintaining relationships, staying in contact and networking in business). Marsha emailed me several great short business stories and this one is my favorite.

It is early on a weekday morning and Karen is stepping out of the shower as Bill is stepping into it in order to get ready for the business day. As Bill turns on the water, Karen hears the doorbell. She wraps a towel around herself and runs to the front door only to discover their neighbor Jason standing there. Jason holds out five $100 bills and says, “I’ll give you $500 if you drop your towel.” Karen thinks for a few seconds and decides to accept the offer. She drops the towel and immediately Jason hands her the five bills and walks away.

Karen returns to the bathroom and tells Bill it was just the neighbor, to which he responds, “Did he give you the $500 he promised to repay me today?”

The business lesson here is that if you have a partner, it is critical that they know everything that is going on or bad things may happen in the business. Which takes me to my topic for the month. I received an email from someone interested in buying an existing business, wondering whether he should buy the business with a partner or go it alone.

As a general rule, I do everything humanly possible to talk anyone out of starting or buying a business with a partner. It is never a question of if the partnership will run into trouble, it is a question of when. Every partnership will eventually run into trouble. Someone will complain about unfair division of responsibilities, someone is working harder or longer hours, someone is taking more vacation or not working weekends. Sure, having a solid and well thought out Partnership Agreement will help, but in my 30 years of business, I’ve never seen a partnership live on happily ever after.

However, sometimes you don’t have a choice. So if you feel the need to ignore my advice, only get a partner if the following apply: you need help with the purchase price (consider a loan because they go away once paid off); the other partner(s) have a skill or expertise you don’t have and it is critical to the business; they share the same business drive and passion and you can easily split roles and responsibilities. Never, never, never start a business and then communicate that you and your partner are co-owners and will function as co-presidents. That is a recipe for disaster. Having very clear roles and responsibilities and boundaries is important for the partnership and for the sanity of the employees.

Should you consider partnering with a spouse or significant other? Personally, I think it is a mistake. It is important to have balance in your life and if you and your significant other are working together you will never get away from the business. My wife, Jill, and I partnered on a business and it worked just fine but it was because we had clear and separate roles and responsibilities. We had been married for 25 years at the time so we were going into the business with a strong foundation.

Most everyone dreams of owning his or her own business and if you can do it without a partner, all the better. If you need a partner, go into it with your eyes wide open. A business partnership is just like a marriage, but without the fun stuff. And by all means, make sure you are communicating constantly so there are no surprises.

Paul Thomas teaches business and entrepreneurship at Northern Arizona University, serves as CEO of the Northern Arizona Leadership Alliance (NALA) and is the chief entrepreneur of the NACET Accelerator. Prior to joining NAU in 2013, Paul spent 25 years as a serial CEO and president. Thomas can be reached at Thomas.tpaul@gmail.com.