March 15, 2022

As with any relationship, starting a small business with someone can be an exciting new venture. However, the financial strain of daily operations combined with strong egos can easily turn any good relationship sour over time.

If you’re a co-owner of a small business, there may come a time when you and your business partner decide to part ways. In this event, it’s important that you have the right agreements in place to protect your assets and company’s future. 

Reasons for Splitting Up a Business Partnership

Below, we’ve listed three reasons why many business owners decide to split up.

Differences in Money Management

As it takes money to make money, it’s not uncommon for business owners to argue over finances—especially if each person has a difference of opinion on what constitutes a “business expense” or how best to allocate existing funds and generate cash flow. 

Money can often equal conflict, and if this is the case, it can escalate issues quickly. A financial planning expert who specializes in business may be able to help you both sort through the essentials, but if you each have different spending/savings habits, this could affect the company if not resolved.

Bad Communication

In this scenario, you and your business partner don’t communicate when problems arise, making a possible resolution almost “impossible” to achieve. 

Referring back to money management, if you and a co-owner are struggling to decide how to allocate funds into different sectors of your business, bad communication can make matters even worse.

Time & Investment

All business owners understand that running a company is more than a full-time job. It’s a lifetime commitment. So, it’s not unusual to spend 60+ hours a week at the office crunching numbers, helping customers or managing daily operations. 

However, if you’re discovering that the amount of time and energy you’re putting into the company far exceeds your business partner’s, you might want to step back and figure out if his or her passion is making the company a success, or if this is just a side project for that person. 

3 Tips for Ending a Business Partnership

When starting a business, many entrepreneurs often partner together to help save on costs and lessen the inevitable strain and responsibilities of owning a company. 

However, if you’re starting to realize that it might be time to part ways with your business partner, the next step is knowing how to broach the subject.

Here are a few ways to get started:

Begin the conversation

Although this part is the most challenging, it’s important that you sit down with your business partner to explain your reasoning for ending things. 

Remember to be clear and direct with your words to avoid any miscommunication.

Be Reasonable

The news that you want to break up the partnership may either come as a shock to the other person or be long overdue. Regardless, understand that as much as we try to make it about the business, it usually gets personal. So, keep your emotions in check. 

It’s good practice to admit your own faults, too, that may have contributed to the final decision. 

Make an Exit Strategy

Present your proposal for parting ways and what will happen to the business and its operations. Whether you plan to buy your partner’s share of the business or return assets, you’ll need to put everything down in writing. 

If your partner agrees to the proposal, or you both negotiate future arrangements, have an attorney who is experienced in business law review the exit plan and draft a contract for both parties to sign.

In a previous article, we discussed the benefits of having a buy-sell agreement already in place. This type of contract is designed to help you in the event of a business breakup, or if one of you becomes ill and is unable to perform your responsibilities related to the company. 

Even if you and your business partner are on good terms, and working toward the same goal, a buy-sell agreement will ensure you both receive fair compensation and distribution of business-related assets if things go south. 

In reality, it’s better to draft this type of contract when you’re both on good terms to avoid feelings getting in the way of making important business decisions. 

How A Business Attorney Can Help!

Speaking of feelings, remember that it’s not unusual for the initial conversation to get heated, or for partners to disagree on proposed terms and conditions. This is where seeking professional legal advice is invaluable. 

An attorney who specializes in small business legal services will help protect your assets, owner’s rights, and financial investments related to the business.

If you’d like to learn more about creating a buy-sell agreement, or if you’re facing a business breakup, contact the Minnesota lawyers at KTF Law Firm. 

Our dedicated attorneys are experienced in business law and contract drafting. We also offer consultations, agreement drafting, and litigation services to protect you and the future of your business.

Contact us today! 

Two business partners shaking hands.
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