Opinions and input on partnership - Contractor Talk - Professional Construction and Remodeling Forum

CNC · 05-21-2006, 07:35 PM

im thinking of going into a partnership with a good friend. i know i know i hear it all the time, its a bad idea. the most logic i can see is a 50/50 deal, i cant see either of us going for anything different. i just want to do some investigating on some of your guys own expierence. in my eyes the business will be twice as good with both our heads, views, and ideas, contacts and knowledge. any input on do and dont would help. thanks in advance guys.

Gordo · 05-21-2006, 07:52 PM

Quote:

Originally Posted by CNC

im thinking of going into a partnership with a good friend. i know i know i hear it all the time, its a bad idea. the most logic i can see is a 50/50 deal, i cant see either of us going for anything different. i just want to do some investigating on some of your guys own expierence. in my eyes the business will be twice as good with both our heads, views, and ideas, contacts and knowledge. any input on do and dont would help. thanks in advance guys.

Go into it with clearly defined roles.

PipeGuy · 05-21-2006, 08:02 PM

I very much benefit from having a partner. We each have different skills that are critical to the business 's success and we're both fine with letting each other do what it is we each do best. I trust his judgement and he mine. That being said, I wouldn't have a 'friend' as a partner.
My partner and I weren't 'friends' when we struck out together but had worked with each other for 3 or four years in varying roles. When we got serious about considering a partnership, I drafted a detailed questionairre about what our expectations were, we both completed it and then we went over our repsonses with each other. It was important to me that the expectations got aired and reconciled before we got along too far in the process of formalizing business plans.
So far I have no regrets about having an equal partner in business.

CNC · 05-21-2006, 08:26 PM

Quote:

Originally Posted by PipeGuy

I very much benefit from having a partner. We each have different skills that are critical to the business 's success and we're both fine with letting each other do what it is we each do best. I trust his judgement and he mine. That being said, I wouldn't have a 'friend' as a partner.
My partner and I weren't 'friends' when we struck out together but had worked with each other for 3 or four years in varying roles. When we got serious about considering a partnership, I drafted a detailed questionairre about what our expectations were, we both completed it and then we went over our repsonses with each other. It was important to me that the expectations got aired and reconciled before we got along too far in the process of formalizing business plans.
So far I have no regrets about having an equal partner in business.

why do you say not a friend? i guess it depends on what you consider a friend. we have worked on several projects toghether, and we both think very simimlar when it comes to work. i guess im having a hard time defining friend? i feel the same as you as far as, i think we both have alot to offer, and i trust, / he trusts my judgement. thanks for the input.

Mike Finley · 05-21-2006, 08:56 PM

Here is the advice you won't follow -

Form a s-corp. Have one of you own 55% of the shares and the other 45%. Set up the shares so they have voting rights on par - meaning whomever has 55% of the shares has 55% of the vote.

Create a buy/sell agreement the same day you form the corporation. This is an agreement that defines what will happen if one of you wants out.

Which relationship do you think is stronger - being married or having a business partner? Obviously being married, you have intimate bonds, you might have kids together, you sleep together you know everything about each other.

50% of marriages in the USA end up in divorce court, if you have a 50/50 chance of a marriage working out, what do you think the odds are of a partnership?

Compund that to the fact that 75% of all businesses don't last past 5 years and think about those odds.

I know, though you guys will be the exception, you just know it!

IHI · 05-21-2006, 09:11 PM

LMAO at Mike

Very sadistic humor, but also very realistic. When I/we started this current entity I own it was a partnership I went into with a best friend of many years and we were/are like brothers. We talked it all over, i let him know the con's of everything since this has been my main gig since turning 18 so I've been through it all and kind of warned him how to protect himself from problems. Ended up turning into a lop sided situation with me shouldering the blunt of the load and we knew for awhile it was going bad but tried to ignore/work through it and eventually we just had a heart to heart and split...actually I aquired it all since he wanted to wash his hands of it completely. Took us almost a half a year before we could stomach seeing each other, he was bitter that it did'nt make him an over night millionare and seen it took alot of work behind the scenes, and i was bitter aquiring business debt that we incurred together. Everything's back to normal now luckily, but I'm yet to meet anybody that has a partnership work out like "they plan"

It's tough so be prepared to possibly lose your freind in the future and if your lucky it will only be temporary.

PipeGuy · 05-21-2006, 09:19 PM

Quote:

Originally Posted by Mike Finley

Here is the advice you won't follow...

Dude, is your wife away for a couple of weeks or something? You've been kinda' edgey lately

CNC, as usual Mike's advice is dead on. I went out and worked with one of the best 'business' law firms in our area to do almost exactly what he described within a week of filing the S-corp papers. It was money well spent. We also bought insurance policies to fund the company's anticipated losses in the event one of us croaks.
Another piece of advice though not 'partner' oriented - WRITE A BUSINESS PLAN NOW. Most anyone can do it now'days thanks to the availabilty of some good commerial software. It'll make you answer some questions that you might otherwise overlook.

I remain optimistic we'll be in the 25% that make it past 5 years.

realpurty2 · 05-21-2006, 10:02 PM

Quote:

Originally Posted by Mike Finley

Which relationship do you think is stronger - being married or having a business partner? Obviously being married, you have intimate bonds, you might have kids together, you sleep together you know everything about each other.

50% of marriages in the USA end up in divorce court, if you have a 50/50 chance of a marriage working out, what do you think the odds are of a partnership?

Being in a partnership and married to your partner really really gets complicated sometimes. It would be similiar with a friend, just lesser degree. Someone has to have the final decision making ability.. and be prepared for anger and frustration to sometimes spill over into your friendship.
A partnership, in my opinion, doesn't offer much as far as real incentives in business. Your personal assets and credit are still involved, so you will either benefit or pay the price of your partner. Taxes are similiar to sole prop. since it passes over into your personal tax. The ability to share ideas and resources can be done just as well by one of you taking the lead and other being a VP.
Make sure you plan for how you will disolve a partnership BEFORE you ever get into one. That seems to be the most complicated part of anything.
If I had it to do over.. no way, atleast not with a spouse or friend. There are just too many times we each have individual ideas that do not have gray areas or room for compromise and with a friend or spouse, it's much harder to just make a decision and stand your ground without arguments.

Mike Finley · 05-21-2006, 10:16 PM

Quote:

Originally Posted by PipeGuy

Dude, is your wife away for a couple of weeks or something? You've been kinda' edgey lately

Hang on a second.... (kicks dog)... (appologizes to dog with WTF did I do look on his face)...

... okay, all better, sorry about that!

CNC · 05-22-2006, 12:07 AM

ok, so not too many pro's. just alot of cons. i like the reponse tho. man if i could be in the percentage, that works, it would be good.

keep them coming, id like to hear more personal experiences.

AAPaint · 05-22-2006, 10:17 AM

I've tried partnering up with people on other ventures before. My paint company is mine, and mine alone.

Just remember one thing. Don't count on ANYONE. Your partner, workers, anyone. You only have yourself that you can fully rely on, and you'd better be prepared to do so. If you're forming a partnership keep this in mind every step of the way. Assume if you don't do it, it won't get done, period.

TigerFan · 05-22-2006, 03:25 PM

My experience with business partners has been somewhat good, mostly bad. I'd like to think that I was on the right, up and up, a good guy, a hard worker, honest as the day is long - in other words, a GREAT partner. Then why did most of these not work out?? The one COMMON DENOMINATOR in all of these is - ME! What's wrong with me???

The answer is quite simple. There's not much wrong with me

. But in a partnership it's everything about US. And here's where partnerships break down: expectation of efforts and dedication to the business, for both yourself and your partner, will differ.

Ex> 1 guy is a good guy and a great framer. Other guy is a good guy and a great finish man. Both need each other, but know each other is a good guy. Reality hits when something needs to be done at 9:45pm 6 times throughout a project and one guy typically ends up doing all 6.

It's not that the other guy isn't dedicated, it's just that he's not as dedicated as the first.

You will be absolutely HARD PRESSED to find two people who will DO WHAT IT TAKES, ANYTIME, ANYWHERE to keep the business running. Once person almost ALWAYS ends up picking up more than 50% of the load/responsibility and from that moment on, the 50/50 partnership is over. It's only a matter of time before it sours to the point of splitting.

I REALLY like the idea above about putting in a written questionaire of expectations for the business - filling them out individually, then coming together and working through each one. What a professional way to lend substance to the gravity of what you are about to undertake together - and really expose some potential pitfalls early.

If you're gonna do a partnership - make it at least a 51/49 - someone HAS to be the ultimate decision maker. As one said earlier, put a buyout plan in place immediately. Have your company's operating agreement lay out how the business can be undone, just like how you have it formed. That way there is a real smooth, professional way of parting if need be.

Hope this helps - BTW, there is a solution for the 9:45pm thing 6 times throughout a project. If you partner with someone, put in an ON CALL position that switches between partner's WEEKLY. That way it's laid out in the beginning who's taking the double extra crap underpaid-overtime - you BOTH ARE!

Best of luck -

tf

FWConstGrp · 05-22-2006, 04:03 PM

Quote:

Originally Posted by Mike Finley

Here is the advice you won't follow -

Form a s-corp. Have one of you own 55% of the shares and the other 45%. Set up the shares so they have voting rights on par - meaning whomever has 55% of the shares has 55% of the vote.

Create a buy/sell agreement the same day you form the corporation. This is an agreement that defines what will happen if one of you wants out.

This is the advice we did follow and these are the exact steps we took based on guidance from our lawyer and attorney [not the same guy]. I own the 55% because the GC license is in my name and because I am the one who is qualified and took the test. So I make the final decision if there is ever a disagreement between us.

The only other advice I recieved is to clearly define who plays what role in the company because we both can't do the same job as it will get too confusing.

We too are long time friends and we both agreed that our friendship should last through this entire evolution, good or bad. We talked about this for years. And we've spent hours together discussing the what-if's and how we will get out of it when or if things turn bad.

Follow the above said advice and define clear roles and all should be good. Go see a lawyer too.

We also hope to be in the percentage that lasts.

Good Luck.
Donny

Melissa · 05-22-2006, 04:43 PM

We have somewhat of a partnership experience.

A few years ago, my husband asked a friend if he wanted to work with him on remodels. They agreed a percentage deal would work best. We thought this would be more motivating vs an an hourly wage. It was 55/45.

It worked okay for the most part. Some problems were:

With 2 highly paid people, less profit per job, unless each were to manange seperate jobs, which our partner didn't want to do.

1 person usually ends ups doing more work. My husband was the one customers called on the weekend/evening when a problem arose. Plus he looked at a lot of the jobs himself.

When my husband wanted to take a day off, so would the partner- to keep it equal. Then when the partner would take a day off, my husband would still work, because he felt responsible to the customer, or just couldn't afford to.

Everything had to be documented with 100% accuracy as it was scrutinized by the partner.

Partner finally left because he wasn't making enough money- he was used to making over 100k. They are still on very good terms though, but it was a bit freeing when he left.

After he left, our sales were lower then the year prior, but we made more money due to not having to split it anymore.

CNC · 05-23-2006, 11:18 PM

very thankful for everyones input and diffrent experiences. i think the best idea is approaching the idea of not beong 50 / 50. we have discussed the idea of the partnership, but know its a ways a away. i think the best way to approach it is come up with the logisitcs of the whole thing, and then propose the idea of the percentage. has anyone had an issue with the other person with the lesser half feeling its not fair?

Mike Finley · 05-23-2006, 11:45 PM

The fairness isn't such an issue when both of you are contributing start up capital to fund the business since the minority partner starts to realize he has to put in less than you. Also even though your flow through distributions will be skewed, the salary compensations can be anything you want, provided they meet the IRS's stipulations of being based on realistic compensations.

snapper21 · 05-24-2006, 10:19 AM

Looks like I don't have much to add since everything has been put on the floor.
One thing though. I don't care how good a friend your possible partner is, you need to be sure that there is no hidden agenda.

Grumpy · 05-24-2006, 04:00 PM

Never do 50/50. One of you has to be the tie breaker.

Always have a lawyer set you up with a partnership strategy that has a good exit strategy.

Any monies (in forms of actual dollars or equipment) you each donate should be tallied and totaled and a loan agreement drafted for the COMPANY to pay back your persons.

Set yourself and your partner up with even saleries or commissions. Don't just split the pot after each job. Consider yourself employees of the company you own and pay yourself like employees, then cash out as necessary as stock holders.

Get it all in writing (see above about the lawyer drafting the agreement).

Still want a partnership? Search just this website and you will find multiple threads from different people trying to figure out how to get out of their partnerships... Learn from their mistakes, perhaps consider asking them what they would do differently if they had to do it again.

Edit: The last company I worked for my ex boss, whom I am still good friends with, kinda hinted that he wanted to make me a partner. I was running the office and he was managing alot of the production. Anyways, I am now running my own company. I look back at it and I feel as if the decision I made was the right one, but it was also a tough one. I made the decision because he was happy being small. He was in his comfort zone, and I wanted to grow grow grow. Not only do I want to make money for my own efforts, but also on the efforts of my employees... and that means a sales team, not just ME as the lone salesman. Another factor is that sometimes we had disagreements that I couldn't even believe we were discussing, I was asking myself how the heck could he be thinking differently than me. Ofcoarse being the employee I had to back down, however if I were a partner woould be another story.

I think in the end it will all work out, after all... failure is not an option.