How to Get Out of a Business Partnership

By Nina Kaufman, Esq.

You can probably guess the tell-tale signs of needing to leave your business partnership (they’re similar to the signs for leaving your college boyfriend or girlfriend): Everything they do is wrong. You’re stressed and unhappy all the time. You wake up in the middle of the night with a knot in your stomach.  In short, your business partnership is making you miserable.  So what’s an entrepreneur to do?

Follow these steps to help you get a solid perspective on your business partnership and exit (reasonably) gracefully:

  1. Know what’s really bugging you.  For many small business owners, blaming the partnership is much easier than, well, looking within. Are you lashing out at your business partner because of marital problems at home?  I’ve encountered many business owners whose significant others didn’t understand the entrepreneurial life and the long hours and sacrifices it requires to grow a business. So ask yourself, “Is the business partnership really the problem? Or, is it that I don’t have support at home and feel pressured to choose one over the other?”
  2. See what can be changed to suit you. Because entrepreneurship can be frustrating, it can be tempting to throw our hands and say, “I’m mad as hell and I’m not going to take this anymore.”  Not so fast. If you have determined your business partnership is the problem, first see if there’s anything that can be fixed. Is it a matter of not reaching revenue targets (do you even have revenue targets?)? If so, new initiatives may help you reach those goals. Is it dissatisfaction with staff? If so, fire and hire as needed. Is it a lifestyle issue–where you require more time with family? If so, see what can be better automated or delegated. Bringing in an outside facilitator can help smooth these discussions.
  3. Leave emotions at the door.  If the business partnership ultimately doesn’t evolve, the best way to get out gracefully is to keep matters as dispassionate as possible. If the problem really is your business partner, don’t play the blame game — focus on explaining your needs instead, which can range from preferring a different work environment to needing a certain guaranteed income to support your family or even wanting to work in a different industry altogether. Yes, your business partner will probably take this personally. But if you focus on your needs and how the business can’t meet them, there’s little your business partner can argue with.
  4. Don’t go it alone. When exiting a business partnership– with or without a written partnership agreement–you need to take some practical steps. Make sure you value the business to determine the worth of your ownership interest. [Smaller companies may prefer to rely on their accountant’s independent determination]. You’ll need to work out a payout plan and assess whether or not you have the right to use (or take back) any intellectual property of the company. Remember to also look at your client list to see who stays and who can come with you. And sometimes, the departure of a business partner means that the company itself has to dissolve.

Leaving a business partnership can be a thorny experience. You may feel guilty, and be tempted to discount what you’re entitled to. So remember to have a strong team advising you–accountants, attorneys, and coaches–and you’ll get the counseling you need to get out of the situation as quickly and inexpensively as possible.

Have questions about working with Kaufman Business Law? This is the video to watch.