This guide outlines what you need to do — and what to watch our for — when dissolving a partnership in business.
The act of setting up a business comprises new horizons of exciting foundations, but over time there can be foundations that begin to crack. A common example is when business partnerships don’t seem to be working the way they used to.
When we are looking to break away and make a fresh start by dissolving a partnership, we don’t want to gain any enemies in the process. As many startups grow, they can find a number of hurdles, and sometimes it’s purely down to differences of opinion.
Tips for dissolving a partnership
What does it take to break away properly when dissolving a partnership and ensure that those foundations are not permanently cracked for your future endeavors?
Go for a Clean Split
Sometimes, we can think that dissolving a partnership is about making a new start or purely doing something out of spite. Many a company formation has been undertaken over the years due to that motivation to drive someone else into the ground.
As tensions increase, you can either turn the split into a personal vendetta or you can opt for a moral high ground. You need to give yourself time to feel frustrated, but you need to remain professional at all times.
Ensuring that you make a clean split, not just for your personal sake but your professional entities, can ensure that you are making a new start in every way.
Beware of the Financial Impacts
Breakups are driven by emotion, and the same applies to dissolving a partnership in the world of business. Before you consider whether you are going to be better off having a partnership, you’ve got to dig deep and analyze the overall financial impacts.
It may prove difficult because if you find that splitting up with your business partner results in financial hardship, not just for you and your partner, but the employees, you may want to find a different strategy so you can offset any losses.
Many organizations look at selling off part of their business or using outsourcing as a way to cushion the blow. Many organizations gradually find a way to begin that inevitable move towards dissolving a partnership, for example, by siphoning off parts of the business, reducing operations greatly, but it’s critical to ensure that throughout this process, you are honest and communicate with employees and with your business partner.
It is always going to be a difficult situation, but you have fought alongside these people and you have endured many of the same hardships. If you are looking to break up with a partner and make a clean slate, you need to let them know exactly why they don’t suit your vision anymore.
Offer to Buy Them Out
This is one option that may be suitable for dissolving a partnership, and when you and your business partner have a long and careful talk about the difficulties your partnership is facing, offering to buy out their stake in the company is a way to incentivize their departure that cushions the blow.
A business partner that doesn’t recognize how the business can survive without them may feel impassioned to the point where they want to stick with the company, however, it’s those who truly understand the needs of the business that will accept this. Giving someone a small economic stake in the company can keep the business going forward.
Keep the Dialogue Going
One of the main reasons a business partnership goes south is because of communication breakdowns. You may want to hold long talks with the other person to see if you can salvage the relationship before dissolving a partnership, especially if resentment has poisoned it.
The toughest thing about keeping any dialogue going is not letting emotions come to the fore, but staying professional can preserve the partnership. However, it depends on what your goals are as a duo.
You may have started a partnership as friends and now the friendship is on the rocks, but if staying friends has been more important than the business, it’s critical to communicate this. However, if you are both focused on making more money, you need to be clear in your communications.
Getting Professional Help
Sometimes we need a third party to help us with negotiations for dissolving a partnership. Two partners who may want to maintain a friendship could benefit from an independent third party.
This individual that doesn’t have a stake in the business can provide that all-important advice from an objective standpoint. This means that you can stick to the subject manager rather than veering off into personal and emotional arguments.
When you are looking for exterior help you need to choose someone that both of you can trust. Someone like a business coach or a mediator can help, and you may think about hiring an attorney or a business lawyer, but be careful when you opt for this because it may send a signal to the other person that you are trying to dissolve the partnership legally.
If you still think there is something to fight for, you have got to try and make it as formal as possible, yet without opting for the strict aspects of legal separations. You may need to revisit the agreement you have both made and get a better understanding of the finances so you can both protect your interests, but this is where a third party can be invaluable.
Did You Have an Exit Strategy?
Much like a prenup for married couples, it is critical that you have an exit strategy. When it comes to breaking away from any partnership, this is insurance of sorts. When you have a solid exit agreement in place for dissolving a partnership, this makes for a better and less emotionally taxing breakup.
This is a critical component for professionals who started a business or foundation of friendship. Because businesses can find themselves looking towards money more than professional partnerships, this is something many entrepreneurs fail to address at the outset.
A lot of couples don’t like the idea of a prenup, and it makes logical sense from a romantic standpoint, but in business, it is critical that assets are clearly divided in the exit strategy, and there are ways to dissolve the business.
Conclusion
A lot of businesses can go south for a number of different reasons, and this is why, if you are looking to break away from a business partner, either to make a clean start or to salvage what relationship you have, some of these components can make a significant impact.
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