Good Business Bad Partnership

[Pete]

Hi All,

I am the IT director of a small business in Sydney providing network support and webhosting. I am new to this site and am looking for peer support and advice.

My business was started 10 years ago with a Partner. It is a very good business with good cash flow, good customer list and great team. Even though my business partner and I, are very different people in many ways, we complemented each other well with my technical expertise and his selling expertise.

Over the last 2 years, our partnership has suffered. It started with moving to new plush premises which were bought by my business associate. At the time our company did not have the cash flow but a great opportunity presented itself and he bought it as our premises.

Unfortunately this seemed to have changed the relationship, as he became the landlord as well as the part business owner. We spent over 30k on fitting out the office which seemed to me a bit excessive at the time and it also brought up the issue of conflict of interest for me.

As my business partner was in charge of running the business from admin and sales and I was in charge of the technical team, our roles are well defined and separate. We seem to drift apart a little more every month with only business related interactions.

Even though I may have not agreed with all business decisions my partner took, as long as I believed they were in the interest of the company or at least not hurting, I went along with them. In the same manner, I made all or most of the decisions on the technical side.

This seemed to get worse and worse to the point where my business partner is now making decisions without consultation as they are related to his area but I am also directly affected as an employee, shareholder and director. As I started to worry about the direction of the company, I delegated more of my tasks to my technical team to become more involved and informed about the admin side for obvious reasons.

I have now found out that from the books that a rather large outstanding invoice has been written off as bad debt without even informing me. I know the related job and I know the client and it does not make any sense to me as the work was delivered and the client seemed very happy at completion.

Of course I am going to confront him on this issue. The big question is what will happen to the business?

From what you have probably already concluded, there is probably not much trust or respect left in our partnership. So the future was probably bleak even without this incident.

The options as I see them, notwithstanding the potential fraud and its consequences, are that I buy him out, he buys me out or we split the company.

All of them are acceptable to me but what if they are not to him? Is there any good way out of this Good Business Bad Partnership?

Sorry for the long post but I needed to give my story the proper context for it to make sense. Any thoughts or input is very much appreciated.

Thx.

P

[peoplehub]

Hi Pete,

This is obviously not a great position you find yourself in... though it is probably not that uncommon. I have been in and am involved with companies where the two or three founders of the business split the organisational roles based on their skill set (sales, account, technical, etc). I've been fortunate that my business partners and I have always maintained the respect and trust that you have indicated no longer exists in your own business. Though this has not occured without the odd run-in and spirited discussion between us.

If you are sure the relationship cannot be salvaged within your business, I think your first point of call needs to be your shareholder's agreement. The reason I say this is, a 4th option may be to sell your shareholding to an external party or after your discussion with your business partner, you may agree to sell the entire business. Depending what is in place between the shareholders, it should be reasonable that realise some form of value for exiting the business which you have helped build.

Having said that, without knowing the full details of your business it is difficult offer any great insights, but if I was in your position I would probably do something like this:

1. Raise my concerns with my partner, depending on where the relationship is at, possibly invite a 3rd party to mediate discussions. Get it all out on the table.

2. If everyone agrees the relationship is untenable - I'd have the company independantly valued, that way you know where you stand on each of your options - buying and selling.

3. Come back together to discuss the various exit options for you and your business partner and make the decision.

Outside of that, I would suggest you approach the task with the aim of leaving the relationship in a better position than it currently is - 10 years is a long time to be together in business and it would be a shame to end it acrimoniously. Hopefully your business partner would agree to take a similar approach through this difficult process.

All the best Pete.

Matt

[andrewfirth]

Hi Pete,
I would also consider talking to the client whose debt was written off and seeing if there was any problem with the work performed or if in fact the invoice was paid and your partner has siphoned the money from the business and written off the debt. The outcome of this enquiry may impact on your decision re possible exit strategy. I would be happy to discuss further offline if you would like additional advice.
Cheers
Andrew

[Pete]

Thanks Matt for you thoughtful input.
Yes I believe what you have outlined are the steps forward. I have already planned a meeting about this but with a focus of saving the relationship as it is the best option for now. If it turns out that something untoward has happened then I will have to deal with that when confirmed and deal with its consequences. Fighting for the business based on our history and sacrifice is the right approach to take into the meeting. Thx again.

[Pete]

Originally Posted by andrewfirth

Hi Pete,
I would also consider talking to the client whose debt was written off and seeing if there was any problem with the work performed or if in fact the invoice was paid and your partner has siphoned the money from the business and written off the debt. The outcome of this enquiry may impact on your decision re possible exit strategy. I would be happy to discuss further offline if you would like additional advice.
Cheers
Andrew

Thx Andrew. This is a crucial issue which has only just surfaced. So the next step is to talk with our accountant, client and then with my business partner. Depending on the facts of this, the outcome will obviously change dramatically. At this point I am still getting the facts and want to proceed slowly and carefully.

[jay_m]

Pete you are not in a very good situation but it could be worse...

Read what happened with this guy and how his accountant (Southgate Accountants from Gold Coast, Queensland) was covering up the partner who was stealing money from the company, this is shocking!

http://www.ripoffreport.com/reports/...Off0461671.htm

[Burgo]

Why are you staying

From past experience its time to exit and move on with you life stay and be misserable but life is more important than a few misserable dollars.

I could be way off the mark. 25 years ago I was faced with a similar situation I walk away and it was the best thing I could have done I started a business that grew my partner went out of business six months after I walked