I have a business partner who is in denial about our cash situation, which right now is tight and likely to get worse before it gets better. Unfortunately, my partner’s not willing to make adjustments, even though I’ve tried to explain that we don’t have the money to pay ourselves as much as we used to. What should I do?
THOUGHTS OF THE DAY: Your job as an owner is to protect the company’s well-being — for now and for the future. Figure out who can make the decisions, and under what conditions. Figure out your bottom line before you go into a negotiation. Know how tough you’re willing to be — and then double it.
The company is the source of your and your partner’s income and fringe benefits. If the company does well, you do well. And if the company struggles, you need to take a careful look at sacrifices you may need to make. Even if it hurts. Make sure the company has the financial support it needs to succeed so that when things turn back up you’ll be in a position to reap the rewards again.
Business partnerships are governed by written agreements, which usually only get dusted off and referred to when there’s a disagreement. Make sure you’re clear about what’s in your partnership agreement. Do you have majority control? Or, are you a minority decision maker — which means you have to influence a decision, but can’t mandate it. Or, are you and your partner 50/50 owners, which means you both need to sign off on any decisions. Some partnership agreements specify conditions under which different partners control various decisions.
If you have partnership control, go ahead and mandate the decision. Make it clear you’re sympathetic to your minority partner’s concerns, but that you are first responsible for seeing to the company’s well-being. State that you are exercising your right to ensure the company has the best opportunity to prosper based on how cash is used and disbursed.
Going into the negotiation, do your homework. What is the company’s situation financially? If you’re not sure how to do that, get a financial analyst to help you. Look ahead three months, six months, a year, etc. If you need to cut back on expenses, figure out by how much before you decide where it comes from.
Look at your options for making cuts. Resist the urge to cut sales, marketing, and essential operations. These are your tools for working effectively and getting more business in the future. Cut out perks and fluff and if that’s not enough, it’s time to look at what’s going to the partners.
Talk with your partner about what is easy and hard to give up. Don’t make promises too early. In the beginning, you want to gather data so you can figure out the best solutions under a variety of conditions.
Decide how soon the cuts need to be implemented and for how long. It’s usually better to get everything you need now than to ask for more sacrifices later. Consider what tasks you and your partner can take on so you can save on other personnel costs.
If you don’t have decision control you’re going to have to negotiate. Make a list of what’s in your negotiating toolbox. How essential you are to the successful operation of the business? What would happen to your partner’s lifestyle if you stepped back? What do you know how to do that your partner doesn’t? How well could your partner run the business if you weren’t available?
Keep in mind that without resolving the cash problem through partner sacrifices, the business might be gone anyway. Make it clear you’re not willing to see the company slowly bleed to death. Get your bank, financial advisors, and attorneys involved, to talk with both of you. If necessary, hire a mediator. Just deal with the problem while you still have time to fix it.
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