Jewish World Review

How to salvage a flawed business partnership

By Louise Witt

Answer Central

http://www.JewishWorldReview.com | (KRT) Q. I am planning to start my own business with a partner. I have 50 percent of the cash and 50 percent of the know-how. My partner has the other 50 percent of the know-how that I need to succeed in the business, but he is reluctant to contribute 50 percent of the cash due to his concerns about risk. What should I do?

—Eric S.

A. Well, Eric, you should consider the fact that your business partner is unwilling to risk his money because he either doesn't have confidence in the business plan or he doesn't have confidence in you. Either way this may be enough information to motivate you to find another business partner. Starting a company is hard enough without being in business with someone who doesn't fully believe in the venture.

"You shouldn't be in business with that guy; that's the short answer," says Bob Borghese, a senior lecturer at The Wharton School of the University of Pennsylvania and a lawyer who counsels entrepreneurs. "If he's not willing to make a commitment, then you don't want to be in business with him. To me, it's a red flag; this person doesn't have the risk profile of someone who is going to be a successful entrepreneur."

Before you decide to go into business with anyone, Borghese says it is important for you to assess your prospective partner's strengths and weaknesses. Remember that when you start a company, you're not only investing your money, but also your time and energy. With all that at stake, you want to make sure you're going into business with someone who will be a true partner and do all that he can do to make sure your venture is successful. "Basically, you want to know whether you can trust them," Borghese says.

Martin Snider, author of ``Compatibility Breeds Success: How to Manage Your Relationship with Your Business Partner'' (Praeger Publishers, $49.95), agrees that your prospective partner's reluctance to risk his money in your startup shows a lack of trust - not a good sign. Snider says entrepreneurs should think of a business partnership as they would a marriage.

	BUY THE BOOK
	Does this book sound intriguing? Click HERE to purchase it at a discount. (Sales help fund JWR.).

"Ask yourself the same questions you would if you were going to marry someone," he says. "Just like two people who get married after three weeks, business partners can get carried away with their great idea and decide to form a company."

Snider, who is also a family therapist and an organizational business consultant in Waban, Mass., says a successful business partnership requires that partners are willing to make compromises so that both are satisfied.

"A resolution is when each person feels he got enough of what was important to him," he says. "If one person is harboring resentment that he had to give up too much, then that will sow the seeds for a later conflict."

In your case, you may resent your partner for failing to shoulder his share of the financial risk. Or your partner may resent you for pushing him into a venture of which he wasn't an enthusiastic supporter.

If, however, you do decide to go ahead with your business partnership, there are several ways to structure the deal so that your financial contribution is commensurate with your financial reward. If you wind up putting in all the capital, you and your partner can agree that once the company turns a profit, you will be repaid for your investment. In addition to the company paying back your principal, it can also pay you a risk premium, or interest. The premium may be higher if you and your partner determine that it will take the company some time pay you back, or lower, if it happens relatively soon.

Or you and your partner can decide that because you're providing most, if not all, of the startup capital, your equity in the company will be greater than his. Maybe you will determine that his know-how is worth a 25 percent stake in the company and your know-how and capital is worth 75 percent. Or you can decide that your partner will receive a smaller equity position and get a salary. The idea is that if he isn't taking any risks, then he's not eligible for the rewards. Borghese stresses that you and your partner should have an experienced corporate attorney guide you through this process.

Having a great idea for a business is just the beginning. Unless you and your partner can figure out a way to work with each other that is satisfactory to both of you, then you will have a tough time turning your idea into a successful company.