How do I know when to end my business partnership and split smoothly?

Choosing a business partner can make or break a company. You may pick the wrong partner, you might not like how things turn out, but good intentions alone won’t keep it going forever. In fact, entrepreneurs are 20 to 30 percent more likely to break up a partnership than couples are to get a divorce. Certified Financial Planner Michael Menninger is president of Menninger & Associates, a financial planning and retirement strategy company. He bought out his partner’s stake in his business to become sole owner. You can’t always predict when you’ll have to make this decision, but it’s really important to figure out how to do it the right way.

Warning Sign

The first sign your business marriage is headed for a split might be uneven workload. Partners might divvy up the responsibilities 60/40 or 50/50. If you regularly do more than your fair share, it can lead to stress and resentment. And if you feel like you aren’t being supported, it will erode trust and respect for your partner. Menninger’s advice? If you start to dread going to work each day, that may be your sign that it’s time to dissolve the partnership.

The second warning sign your business marriage might be headed for divorce is clashing over big decisions. Not all disagreements are bad. It’s often healthy to push against each other and test ideas, especially in the workplace. For example, what color to paint the lobby? That’s trivial. But hiring more staff? Expanding to a new city? Taking on investors? Those can shape the culture of the business, its processes and future. While it’s normal to have a little friction here and there, ongoing, repeated disagreements about important things can mean your vision for the company is no longer aligned. Menninger and his partner clashed over the future of the firm and how to manage and grow it. It’s difficult to build a thriving business when you don’t agree on money and direction.

The third sign your business marriage is about to end is work styles. For instance, if one partner checks in with staff once a month and the other has a team meeting twice a week, that could mean friction or resentment. Menninger and his partner had very different ways of serving clients. Partners’ day-to-day decisions form culture and how staff gets things done.

Three Tips for a Smooth Split

Splitting up doesn’t always have to be ugly. In fact, a separation can be healthy, friendly and mutually beneficial. Here are three tips for a smooth split.

My first tip for a friendly separation is to communicate well and not to let your emotions lead the conversation. Make sure you sit down with your partner when both of you are in a calm state. Menninger says it’s important to keep in mind a solution that is best for everyone involved so your partner doesn’t feel like they’re getting the short end of the stick. You might want a solution that is best for you. But it might not be in the best interest of your partner or the business. You want everyone involved in the business separation to feel comfortable that they got what they needed. The odds of a clean break are higher when a neutral third party is there to help.

My second tip is to weigh the options and not rush into a decision. Don’t act too quickly. There may be other options aside from going your separate ways. You could buy out your partner’s share of the business, change classification or cut back his or her role and return. Think through how the separation will affect you, the business and your partner. It can be hard to say goodbye to a good partner if the money coming in is good. Your partner might be bringing in 80 percent of the sales. But, money isn’t everything. Consider operations, scheduling, health, attitude and decide what will make you happy. Menninger says if it’s not going to work to grow the business, it may be a good time to split.

My third tip for a smooth breakup is to document everything and not to make it personal. It’s important to talk to both your personal and business accountants when you begin the splitting process. When it comes time to work out the details of the contract, put everything on paper. After you and your partner have agreed to a change, make sure both of your accountants are aware of the new terms. Poor documentation can lead to confusion, blame, lawsuits and a messy separation. In Menninger’s case, he wrote a proposal to break up the business fairly and explained the reasoning. Spell out exactly who owns what and what future positions are to be expected from both sides. Try not to drag things out. Make sure to avoid wording that will lead to a dragged out drama. Menninger recommends speeding up the payout if possible. The more you iron out up front, the better off you will be.