- A business owner may desire a partner to gain a specific set of expertise. The current owner wants a partner rather than an employee because the position is essential to the organizations longevity and growth, and the current owner wants to ensure that there will be a strong, lasting commitment to the business. A partner is usually much more committed to a business than an employee.
- The third reason that someone may wish to have a partner rather than an employee is the opening of a second facility, operation or retail store. A florist business, owned by an individual wishes to open another store 75 miles from his current office. Rather than put in a store manager the current owner believes that he needs someone with a much greater commitment to the overall business if it is going to be truly successful. Because of the distance involved he would not be able to conveniently manage both stores, as he would be spending far too much time on the road. His plan is to bring in a partner.
On a similar note a current business owner may have reached a point with his business that he needs to split up some of his current duties and responsibilities and feels that a partner, someone who would naturally share in the overall success of the business would be a much better alternative than an employee.
- The requirement for a partner rather than an employee may be driven by the responsibilities that the individual will have within the organization. The new partner may have access to trade secrets or he may be the primary contact for the customer base. In either case the current owner may feel that if he simply hires someone to fulfill the job function that in a few years they would be able to start a competitive business on their own taking the trade secrets or customer base with them. It is far less likely that a partner, who is sharing in the profitability of his current company, would start a competitive business. An employee on the other hand may jump at the opportunity.
- Another reason that an owner of a business may look for a partner is a “planned” retirement. A business owner may feel that he is not quite ready for retirement as of yet but has plans to retire in approximately five years. At the same time he would like to start to reduce the number of hours that he currently spends involved in the business on a day-to-day basis. He looks for a partner that will buy into the business now, possibly as a junior partner, and over the next five years take on more and more responsibility until he is performing all of the tasks that the current owner currently handles now. The current owner may offer you an increase in your percentage of ownership each year, a buy-in arrangement or the agreement may allow you, the new partner to buy additional portions of the business as time progresses. This is quite a common occurrence when the current owner treats the business as his “baby” and believes that only “he” knows how to make it successful.
This type of arrangement has unique advantages and disadvantages;
Advantages:
- The new partner can learn the business at his own pace.
- The new partner can learn the business at his own pace.
- The acquisition investment is spread over many years.
Disadvantages:
- If the new partner wants to “run” and grow the business, he may be held back by the current owner who is happy with the status quo and definitely does not want to increase his current workload.
- In some cases getting the current owner to ever relinquish control can be a problem especially if he is the type of individual who cannot delegate authority and responsibility. When doing your due diligence on the business it would be wise to look at the current employee structure. The current structure should provide you with insight as to how your potential partner works with others, and whether or not it is likely that they would delegate or relinquish authority and responsibility to you.
A business that has an organizational structure that has everyone reporting to the current owner most likely signifies a business where the owner cannot delegate responsibility and authority.