When business partnerships go wrong – 15 issues to avoid

Starting a business partnership can lead to great things – after all, two (or more) heads are better than one, right?

When it’s all going smoothly, a business partnership can provide the ideal supportive environment for your business to grow. However, there are some common problems that come up within partnerships that can throw everything off track if they aren’t dealt with promptly.

1. Fraud or financial mismanagement

Fraudulent trading or activity is the most detrimental issue that could occur in a partnership because of its potential to blast apart the relationship and destroy all trust. The consequences of fraud or financial mismanagement include loss of credibility, legal action against partners with potential custodial sentences and irreparable damage to the business.

2. Breach of fiduciary duty

Partners have a legal obligation to act in the best interest of the partnership. A breach of this duty, such as engaging in competing businesses or misusing partnership assets, can destroy trust and lead to legal disputes

3. Unresolved conflicts in business vision or strategy

Do you find yourself arguing your position to your partner on everything? This could indicate you’re not aligned with your business vision or strategic direction. It slows down decision making and can lead to inaction affecting everyone in the company. If there’s misalignment, it’s something to address quickly for the sake of your mental wellbeing and that of your staff who might be caught in the crossfire.

4. Unequal commitment or effort

When one partner feels like they are doing the lion’s share of the work and the other is lacking commitment to the partnership, this can cause resentment and imbalance, leading to disputes about pay and profit sharing.

5. Lack of clear roles and responsibilities

If you are constantly stepping on each other’s toes, life can become strained. The business suffers because important tasks get missed or some tasks get redone unnecessarily. It’s inefficient, leads to conflicts and it’s bad for everyone concerned. Well-defined roles and responsibilities can avoid all the heartache.

6. Poor communication

Effective communication is vital for any relationship. Without it your business can run into big issues – missed opportunities, misunderstanding and lack of trust among them. Lack of active listening, avoiding difficult conversations and withholding important information are key signs that communication needs work.

7. Misalignment of financial expectations

When partners have different expectations regarding financial matters, it can create significant tension. If you are disagreeing over profit distribution, reinvestment strategies, or personal financial goals, you can end up with significant problems within the partnership. You can get support to resolve financial disagreements by speaking to your accountant who can educate and mediate. Adams Accountancy can provide business advisory services to help you iron out any problems in your partnership business.

8. Failure to document partnership agreements properly

You can mitigate many issues by having a well-drafted partnership agreement. Of course, problems can still arise but having clear documentation from the outset means this is much less likely. Vague agreements leave room for  misinterpretation and disputes that can make it difficult to resolve conflicts if they arise.

9. Personality clashes

Being in a partnership is a lot like being in a long-term personal relationship or marriage. Personality clashes, if not managed, could impact the working environment for everyone and reduce the partnership’s effectiveness.

10. Differing risk tolerances

Partners often have different attitudes to risk which can lead to conflicts in decision-making. One partner may want to pursue aggressive growth strategies, while another prefers a more conservative approach. One might want to go all out on digital marketing while the other prefers a more traditional marketing strategy. Differences create tension which leads to inability to make effective decisions and resentment if not dealt with quickly.

11. Unethical behaviour by one or more partners

When a partner engages in unethical behaviour, it can have severe consequences for the partnership. This might include actions like misusing company funds, engaging in illegal activities, or breaching confidentiality agreements. These actions jeopardise the business and erode trust between partners.

12. Inability to make decisions efficiently

Effective decision-making is critical for business success. When partners struggle to reach agreement or when decision-making processes are unclear and slow, it can lead to missed opportunities and operational inefficiencies. This issue often stems from poor communication, lack of clear leadership, or conflicting visions for the business.

13. Unequal capital contributions

If you and your partner(s) contribute different amounts of capital to the business, there may be imbalances in decision-making power and profit distribution. Documenting everything can help to alleviate any issues around fairness and control of the business.

14. Differences in work styles or management approaches

Significant differences in work and management styles between partners has the potential to cause disagreements in the way the business runs and how staff are treated. While different perspectives can be beneficial, if views are too disparate, you may spend too much time trying to come to agreement, leading to inefficiencies and lost productivity.

15. Intellectual Property Disputes

In partnerships where intellectual property is a key asset, disputes over ownership, usage rights, or royalties can be particularly damaging. These conflicts can arise from unclear agreements, differing interpretations of contributions, or changes in the perceived value of the intellectual property.

Of course, these are just a few of the problems that partners might encounter when running a partnership business. The key to managing a partnership well is regular, open and honest conversation. Without that, your business has little chance of success.

Supporting partnership businesses to flourish

Partnerships can be a wonderful way to run a business. Joining forces with another entrepreneur means you don’t feel alone on your business journey, you always have a sounding board and you can share the risks and rewards. Sometimes though, you might need help keeping the relationship productive and that’s where your accountant can provide invaluable support. If you’d like to discuss your business partnership, or if you are thinking of starting a partnership and need help with setting up, contact us for a free, no-obligation chat about your situation. Check out our recommendations and see what our clients say about us.