The ex files: What to do when business partnerships go bad

What to do when a business partnership goes bad
What to do when a business partnership goes bad

Tom and Nancy's business, Worldwide Trailers, makes concession trailers that are sold across the country. Unfortunately, their business partnership began to sour once their personal relationship of more than 20 years went bad.

Mixing business and pleasure is a common and long-established practice, but is it advisable?

"Usually relationships don't last forever, but business does. It's a big problem," said Marcus Lemonis of "The Profit."

So...what is Make It?

In 2007, there were 1.4 million businesses jointly owned and operated by a husband and wife according to the Survey of Business Owners by the U.S. Census Bureau.

In the case of Worldwide Trailers, it got to the point where Tom and Nancy could no longer work together. For example, Tom did not even consult Nancy when calling in "The Profit" to evaluate their business.

Mark Hooper | UpperCut Images | Getty Images

The former couple could not agree on how they want to run things, whom they wanted to fire, their business location, who was responsible for what. "They simply don't trust each other. The level of accountability has completely disappeared, 100 percent," Lemonis said at the time.

The consulting firm Family Business USA labeled business/marital partners "co-preneurs." Beyond its basic recommendations to co-preneurs like sharing responsibilities, being flexible and working as partners, it offers some other suggestions:

  • Don't compete with each other;
  • Set specific times to discuss the business;
  • Don't be afraid to disagree;
  • Acknowledge that there will be disagreements and prepare to face them calmly;
  • Take time away from each other, and
  • Don't give up your personal life for the business.
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Clearly business partnerships when in a personal relationship can be a volatile arrangement, and they're not always successful. Certain telltale signs indicate trouble is afoot in a partnership, Lemonis said. Those signs are:

  • Poor communication;
  • Poor collaboration, and
  • Not wanting to get each other's input.

"When money's pouring in and the results are great, everybody's happy. The minute the business starts to not perform or not deliver the results that are expected, people start to question each other."

When the business is underperforming, it can lead to partners' mistrusting each other, challenging each other's philosophy and questioning how much time, effort and money the other partner is putting into the business.

"I always tell people to stay away from partnerships that involve family or friends, because when the results start to suffer, things fall apart very quickly. If you see that happening, the only way to fix it is to get very focused on the prize, which is taking care of the results, taking care of the customer and taking care of the employee. If you do those three things, the relationship will come back together when the results do."

But if you must combine business and pleasure, make sure there's communication and collaboration on decisions, Lemonis said.

So...what is Make It?

"My advice to people who feel like they're in a relationship or a partnership that's falling apart is better communication, more frequent and more in depth. A better understanding of what decisions are being made. And make sure that all the partners understand and sign off on all the decisions that are being made so that you don't get into the blame game of he said and she said. That's the biggest challenge."

If it's not salvageable, there needs to be documentation in place stating how you get out of that partnership. In fact, one of the biggest failures in small businesses is the lack of an exit agreement, Lemonis said.

"I'm not a big fan of prenups in relationships, but I am a big fan of prenups in partnerships," he said. "Nobody ever goes into a relationship expecting something to fail, even though it's an uncomfortable conversation upfront, you have to anticipate, if this doesn't work, how do I get out? And you want to make sure that you have a clear path to exit."

That agreement can specify how the partner may get out of the deal, how to sell or trade their position, or how the other party can buy you out.

Another reason to tread carefully when considering turning a personal relationship into a business is that it can affect more than just the couple. There are employees and customers to consider.

As Lemonis points out, the lack of trust in Tom and Nancy's personal relationship permeated the professional relationship and as a result "it spilled out all over this business, including the employees."

So when such a partnership goes south, "Leave the employees out of it. Don't have them pick a side. It's not — you know, in a divorce, you never wanna pull the kids into it and have them pick for mom or dad. It's the same in business. Don't play that game. 'Cause all you're gonna end up doing is losing your employees."

To determine who actually is a good potential partner, Lemonis says to look at other factors in a business relationship than in a personal one. Don't partner up with someone who's investing in a business for fun. (Lemonis sees this phenomenon all the time in the restaurant business.)

"What I would do is get into a partnership where there's a number of people who all bring something different to the table, a different skill. One may be good at technology. One may be good at sales. One may be good at manufacturing. One may be good at accounting."

"If they don't bring a skill, then they truly don't add incremental value above and beyond the money. I wouldn't do it."