Editor’s note: Although this is a “classic” Ask Andi column, the sentiments are very much relevant to today’s pandemic. Ideally, these conversations have already taken place between partners, although follow-ups may need to happen as business slowly returns. Even if you aren’t working with a partner today, this article provides some food for thought for those who might consider merging services with another company in the near future as we all chart our paths back to recovery.Dilemma: I have a partner who is in denial about our cash situation, which right now is obviously tight and likely to get worse before it gets better. Unfortunately my partner’s not willing to make adjustments, even though I’ve tried to explain that we don’t have the money to pay ourselves as much as we used to. What should I do?
Thoughts of the Day: Your job as an owner is to protect the company’s well-being—for now and for the future. Figure out who can make the decisions, and under what conditions. Figure out your bottom line before you go into a negotiation. Know how tough you’re willing to be, and then double it.
Partnerships are governed by written agreements, which usually only get dusted off and referred to when there’s a dispute or a company crisis. Make sure you’re clear what’s in your partnership agreement. Do you have majority control, or are you a minority decision-maker—which means you have to influence a decision, but can’t mandate it? Or, are you and your partner 50/50 owners, which means you both need to sign off on any decisions? Some partnership agreements specify conditions under which different partners control various decisions.
If you have partnership control, go ahead and mandate the decision. Make it clear you’re sympathetic to your minority partner’s concerns, but that you are first responsible for seeing to the company’s well-being. State that you are exercising your right to ensure the company has the best opportunity to prosper based on how cash is used and disbursed, especially now when cash flow is so vital.
Going into the negotiation, do your homework. What is the company’s situation financially? If you’re not sure how to do that, get a financial analyst to help you. Look ahead three months, six months, a year, etc. If you need to cut back on expenses, figure out by how much before you decide where it comes from.
Look at your options for making cuts. Most of you have already had to cut down to the bone in the past year, but resist the urge to cut essential operations like sales and marketing. These are your tools for working effectively and getting more business in the future.
Talk with your partner about what is easy and hard to give up. Don’t make promises too early. In the beginning you want to gather data so you can figure out the best solutions under a variety of conditions.
Decide how soon the cuts need to be implemented and for how long. It’s usually better to get everything you need now than to ask for more sacrifices later. Consider what tasks you and your partner can take on so you can save on other personnel costs.
If you don’t have decision control you’re going to have to negotiate. Make a list of what’s in your negotiating toolbox. How essential you are to the successful operation of the business? What would happen to your partner’s lifestyle if you stepped back? What do you know how to do that your partner doesn’t? How well could your partner run the business if you weren’t available?
Keep in mind that without resolving the cash problem measures including partner sacrifices, the business might be gone anyway. Make it clear you’re not willing to see the company slowly bleed to death. Get your bank, financial advisors, and attorneys involved to talk with both of you. If necessary, hire a mediator. Just deal with the problem while you still have time to fix it. [CD0221]
Andi Gray is the founder of the Business Consulting Firm Strategy Leaders. She can be reached at email@example.com.