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Profit Power: Are partnerships good for business?

March 22, 2017 -  By

 

Is it more satisfying and profitable to be a sole owner or to have a business partner?

Recently, I have found myself working with many companies that are co-owned and co-run. It shows up in many flavors: two siblings, a husband and wife or simply two business partners—either a younger and older generation or two friends.

I will share with you what I tell each of them: Either the partnership works fantastically well and you gain great synergies (think: 1+1=3) or the partnership becomes messy, with lack of clarity between the roles, and the it produces subpar results (think: 1+1=1.5).

How do you know when your partnership lacks synergy?

  1. When each owner is receiving substandard pay for the size company. This happens all too often. Especially in a family business where family members are undervalued (even if they overperform).
  2. When the co-owners’ roles are ill defined and there is overlap between the roles. You notice this scenario when employees think they have two bosses, clients think they have two contacts or certain admin or finance processes are not being executed. You also see this when one side of the business is doing poorly compared to another side.
  3. When decision making is slow and painful or mismanaged. This can be on small decisions and big decisions alike.
  4. When growth is slow. Sometimes the partners are hampering the natural growth instead of accelerating it.

Partnerships don’t always have to be problematic. I work with a multipartner business west of the Rockies that’s growing steadily up to $10 million and making over 20 percent net profit. The partnership works great and the results show. With multipartner firms it’s ideal if there’s a 51 percent-plus owner to keep decision making fluid.

If you’re thinking about taking on a partner, look for the following:

  • Someone with a skill set that’s complimentary to yours;
  • Someone you can trust with your money and your life;
  • An unmistakable alignment in your values;
  • A competitive advantage that will emerge from the partnership; and
  • A unique scenario that will allow you to build wealth and also take enough vacation. Unfortunately, this is not always the case with married-couple partnerships.

I work with a high-end focused dual partner firm that makes over 25 percent net and each partner takes off a couple months each year—at different times, of course. Now that’s a beautiful thing!

Jeffrey’s Breakthrough Idea: Structure any partnership so the whole is greater than the sum of the parts (1+1=3).

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About the Author:

Jeffrey Scott, MBA, author, specializes in growth and profit maximization in the Green Industry. His expertise is rooted in his personal success, growing his own company into a $10 million enterprise. Now, he facilitates the Leader’s Edge peer group for landscape business owners—members achieve a 27 percent profit increase in their first year. To learn more visit www.GetTheLeadersEdge.com.

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