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2 years ago · by · 0 comments

Avoid Becoming the Victim of Partnership Woes

In the course of my work, many clients share their personal and professional lives with me. I listen to what they have to say, intently and empathetically. Sometimes, I have a solution to share with them – finance-related or not. Other times, I simply offer a listening ear.

One such client approached me with his business woes. He wanted me to assess his personal and business finances, before committing to a change in partnership ownership.

To be honest, his story was nothing out of the ordinary. It was yet another business partnership that did not go quite as planned. But for the majority of us, it serves as a reminder that we should always plan for the worse, but hope for the best:

How the partnership begins

After working for close to a decade as an applications manager in a multinational IT company, Travis got retrenched. In a bid to adopt a leaner structure, the company decided to cut back on employees, and lose its smaller clients to focus on its major accounts.

Instead of mulling over future prospects after the retrenchment, Travis did the unthinkable. He offered to become the IT solutions provider for clients that his company had just dropped. Rather effortlessly, he clinched deals with six small- to medium-sized businesses across various industries. Not bad for a start!

But being new to business and lacking enough capital, he decided to rope in David. An ex-colleague who has kept in touch all those years, David was also an applications manager with an established company. They were on par in terms of knowledge, skill set and experience. A 50/50 partnership seemed ideal.

Being stereotypical tech people, they did not pay much attention to formal agreements. They had the basic inked, but were more interested in getting the business on track. Everything else could wait.

Travis might have gotten the ball rolling, but David brought in more clients over time. To avoid conflicts, both helmed different team of engineers. For the next six years, the company reported steady growth.

Changes in the Business

Clients found them reliable and they helped deliver results. But as the business-to-business sales environment evolved, Travis and David faced new challenges. They realised clients were looking for more complex solutions backed by sophisticated sales support. This placed a strain on the company’s resources and capabilities.

They had to find lower-cost solutions that produced the same deliverables. They also had to tackle issues of new compliances and regulations, and increased competition not only in Singapore, but also overseas. Investing in staff training was a must, but so was procuring new software licenses and upgrades.

Travis and David knew that they had to reexamine the company’s business direction. Should they specialise or diversify? Should they revamp their business model? After much debate, they decided to turn to a third-party consultant to assess and propose viable business directions. At that point, Travis and David were already nearing their 50s.

Partner becomes ill

In the midst of reviewing business changes, David suffered from a heart attack during a meeting one afternoon. Before that, he had shown no symptoms of an ailing heart. When doctors saw David, his coronary arteries were blocked, and he was due for an immediate heart bypass surgery.

David took several months off work to recuperate. Even after those initial months, he was advised against overseas business trips. He cut back on work hours, sat in for fewer meetings, and started to work from home.

At first, Travis was very accommodating. He started to manage David’s clients and team to allow him ample time to rest, hoping that he would be able to bounce back quickly. However, David never got back to being quite as fit as before.

His time spent in office was not very productive, and he appeared disconnected from his team and the business. Travis also noticed that David was less susceptible to stress and more risk-averse. His plan to slow down in another five years seemed distant, as he had to work doubly hard to make up for his partner’s inadequacies.

Resentment Build up between partners

Frustration grew, and resentment took over. Travis and David found themselves disagreeing on more issues. Being more involved in the business, Travis naturally felt that he was in a better position to make decisions. Yet, David often opposed Travis’ views almost as a resort to grapple with his seeming lost of authority at the workplace.

David even wanted to get his son, a final year computer engineering student in NUS, to join the business when he graduates. He had planned to groom his son to take over his place a few years down the road.

Would David’s son then take his father’s place as an equal partner in the business? Would he be another salaried employee in the meantime?

Travis found himself in a tight spot. On one hand, he found it difficult to leave his friend in a lurch, but on the other hand, he felt indignant that the future of the business he founded was shrouded in uncertainties.

When I last spoke with Travis, he shared his thoughts about buying out David’s share of the business. But without a buy-sell agreement, Travis and David need to reach an amicable settlement. Travis would also need to have enough funds for a buy-out, even though he had never made provision for one.

Towards the end of the discussion, he did not rule out the possibility of putting the business up for sale and retiring early – an option that seemed very likely, given the circumstances, but also the most difficult to make on many levels.

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