A business partnership is like a marriage, those in the thick of it say, and entering such a union shouldn’t be taken lightly

It’s like a marriage.

You meet, you talk, you get along, you have shared goals, you plan for the future.

And you take the big step . . . You go into business together.

By Nancy Salem
Tribune Reporter

"People often compare a business partnership to a marriage," said Wayne Unze of Vaughan Business Opportunities in Albuquerque. "You have to choose a business partner as carefully as you would a spouse. You’ll spend a lot of time with the person. And there is a great deal of emotion attached to running a business. There are money issues, ups and downs, mood swings. There are conflicts."

Partnerships are common in business, especially in startups, because one person often doesn’t have enough money to go it alone. And partnerships are tricky, complicating the tough job of launching or running a company.

"Most startups are undercapitalized and not well researched – the two main reasons businesses don’t make it, and about 60 percent of startups fail in the first three years," Unze said. "When you add a partnership to the mix, it can weigh heavily against the odds of success."

A partnership gone bad can breed resentment, pettiness, disagreement and failure. It can destroy friendships and family relationships. Unze says about one in four partnerships works out.

But done right, a partnership can bring great success through a sharing of risk and a doubling of capital, contacts, ideas and elbow grease, he said.

Alike, but different

Successful business partners have diverse skills but compatible personalities, values and work ethics, Unze said.

One of Albuquerque’s most notable teams, Jon Patten and Bill Scott of Dion’s Pizza, have a yin and yang dynamic.

"We have very different points of view and very different ways of doing the same thing," Patten said. "And yet each of us recognizes and respects the other way of doing it."

When the junior high school buddies went into business in 1978, they divided up the duties.

"I like to do the financial analysis and the planning and marketing," Patten said. "Bill likes the day-to-day operations and the people decisions."

Scott says Patten is more cautious while he’s more impulsive. "Left to his devices, we’d never do anything," Scott said. "Left to mine, we’d have done a bunch of stupid stuff."

Scott says if two partners agree on everything, "then one is unnecessary, and, if they disagree on everything, then both are unnecessary."

Patten said it was important that he and Scott had common values. "We’re different but the same," he said. "We’re different in what we bring to the partnership but the same in values and vision – we want to end up in the same place."

Another well-known business team, former Gov. Garrey Carruthers and Sharon Jones, say their relationship, spanning 27 years, thrives on differences.

"I’ve seen a lot of forests, but I’ve never seen a tree," Carruthers said. "Sharon’s specialty is trees. I provided the visionary picture and she made sure it happened."

Carruthers and Jones, partners at the Roundhouse from 1986 to 1990 – she was his deputy chief of staff and executive assistant – and later in building Cimarron Health Plan, said the relationship is based on trust.

"There is absolute loyalty between us," Jones said. "And support. If Garrey gives you responsibility, he also gives you authority."

Carruthers said he doesn’t like doing what Jones does and vice versa. "Together, we’re an excellent team," he said. "I’m not detail oriented and she lives on that stuff."

Plan ahead

Unze says a key to success in a partnership is meticulous planning.

A partnership agreement should go into detail about all aspects of the business, he said. Partners should address such issues as disposition of profits or losses, fringe benefits, roles to be assumed and hours to be worked by each partner, time off, hiring and firing, purchasing, confidentiality, financial obligations, and when to expand, downsize or sell.

And there are the "Dismal Ds" to consider: death, divorce, disability and dissolution.

"You don’t want to end up partners with someone’s ex," Unze said.

He said partners must discuss "every issue of the operation of the business and anticipate every possibility."

"It’s like a pre-nup," he said. "You need a road map."

Consultant Deborah Weaver Parker of Dynamic Growth Strategies in Albuquerque said an exit strategy, while painful to contemplate, is a must. A mechanism should be in place to dissolve the partnership either through a buy-sell agreement between the partners, a sale to a third party or a liquidation of assets.

"Look at how it will end before you begin," Parker said. "People get caught up in the heat of the moment and don’t think about what will happen when somebody wants to take their toys and go home."

Parker and Unze said most partners don’t plan enough, and should seek advice from lawyers and accountants before going into business. "They charge ahead blindly," Unze said. "They agree to throw in a certain amount of money, and speak in generalities."

Separate, but equal

The best partnerships are based on equality, with each person investing the same amount of money and time, Unze said. Often it’s the opposite – one partner putting up the money and the other doing the work.

"If things don’t go well, the working partner tends to want to throw money at it while the money partner is typically more conservative and reluctant to go beyond the initial investment," he said. "If one doesn’t buy into the other’s logic, that’s a conflict."

Patten said he and Scott started Dion’s with $4,500 each. "We thought about having one partner put in more money and have a greater percentage of the business, but decided it was unfair," he said. "Our biggest asset was how much work we were willing to do, not capital."

Robert Medina, co-owner with Orrin King of Fresh & Clean Portable Restrooms Inc., said he and King put in writing before going into business in 1999 what their financial and work obligations would be.

"We have equal investment and responsibility," Medina said. "We never had a conflict with money as the company grew and became more valuable. If it failed or succeeded, we were both responsible."

He said he and King share a strong work ethic. "We both put in 70-hour weeks, and focus on what we each can do personally to help the business succeed," he said. "We’re both happy with what we’re doing and enthusiastic."

Communication in a partnership is a must, Parker said.

Victor Chavez, who with David Grieves built Chavez-Grieves Consulting Engineers into one of the city’s top structural engineering firms, said he lives by the rule "Don’t keep your mouth shut."

"Always be willing to challenge your partner, so you can both improve," said Chavez, who launched the company with Grieves in 1980 with $3,000 each. "Keep a dialog going."

When conflicts arise – and they do, even among compatible business partners – talk is especially important.

"If Bill and I don’t see something the same way, we agree to disagree and continue doing it the same way," Patten said. "Then we revisit it six months or a year later and find a middle ground."

Chavez said he and Grieves have "come-to-Jesus talks."

"We replan how to do things," he said. "Or we ask people to help us. Just like in a marriage, you go to somebody who’s smarter than you are."

Trust

Discussions about partnerships invariably come around to the issue of trust.

"Ultimately, the reason our business worked was that I had absolute faith that everything David did was to help the company, and vice versa. Even if we didn’t agree, nothing was done maliciously or to hurt each other," Chavez said. "You have to find a business partner you trust, absolutely trust."

Patten said he trusts Scott "totally, and he trusts me."

"If you have issues of trust going into a relationship, it won’t go away," Patten said.

Jones and Carruthers said trust helped them learn from each other and build a close friendship, like other successful business partners.

"I learned a lot from Garrey and he from me," Jones said. "We joked for years that he made me stay on an upward climb in life. There weren’t many plateaus."

Carruthers recently left Cimarron to become dean of the College of Business Administration and Economics at New Mexico State University.

"It was sad," said Jones, a Cimarron vice president. "He’s always been my mentor, the person I could go to. When he talked to me about leaving, I had no doubt in my mind it was what he needed to do.

"But it was hard. He and I worked long and hard on the company. I miss him."

***

IN IT TOGETHER

A partnership is a legal business agreement that can be set up four ways, says accountant Karen Urbielewicz of Karen T. Urbielewicz CPA PC in Corrales.

She says she generally recommends partnerships and limited liability companies, or LLCs, for new business owners who need flexibility around income and taxes. Corporations are for businesses that need more control for shareholders, she says.

"I generally counsel people not to get too complex too quick," she says. "Grow into it. Go into a form that you can test the waters, that won’t create nightmares getting out of."

Here are features of the four partnership models from the 2003 edition of the Small Business Quickfinder Handbook:

Partnership

An association having two or more owners that functions as a trade or business. Partnership income, expenses and losses flow through to the individual partners.

Advantages: A partnership can be a good way to combine the skills and/or financial abilities of different people.

Disadvantages: A partnership is often easier to get into than out of, and general partners are liable for actions of other partners.

C Corporation

A business entity that carries its own legal status, separate and distinct from its owners. A C Corporation pays tax on its profits. Shareholder profits take the form of taxable dividends.

Advantages: limited liability, perpetual life, ability to raise capital through issuance of stock, ease of transfer of ownership.

Disadvantages: double taxation of profits, corporate charter restricts types of business activities, subject to various state and federal controls.

S Corporation

A corporation that is taxed like a partnership. Income, losses and expenses flow through to the shareholders.

Advantages: limited liability, avoids double taxation of profits, profits passed through are not subject to self-employment tax as in a partnership.

Disadvantages: shareholders pay tax on earnings even if undistributed, less flexibility in choosing a tax year, contribution limits to a qualified retirement plan are based on employee/shareholder wages, not overall profits.

Limited liability company

A hybrid entity that combines the pass-through attributes of a partnership with the limited liability of a corporation. It is taxed as a partnership, income and expenses flow through to members.

Advantages: avoids certain S corporation restrictions, avoids double taxation of profits.

Disadvantages: inconsistent treatment state to state, relatively new business entity with little regulatory or case law to follow.

Nancy Salem

http://www.abqtrib.com/archives/business03/081803_business_partners.shtml