I have been a lurker here for a while, with a few posts when I thought I could add something. I have learned a lot from many of you and thought I would pose the following for all to comment.
I have been on my own for two years now doing mostly small to medium remodeling projects, window and siding replacement, decks, additions, etc. I previously worked for other contractors “running work” and spent some time with a consulting firm. I struck out on my own because I truely enjoy this profession.
This past winter, in an effort to expand to larger, architecturally designed projects, I began working with another independent contractor who had a much larger portfolio of the type of projects I was interested in. We have worked together as a joint venture since February and we get along personally and agree professionally.
As things have progressed, we have started to look at growing a business, hiring employees, manning several jobs simultaneously, and eventually getting the office out of the house, having a shop etc.
My question is this: Has anyone out there successfully merged two independent, one-man shops and started a corporation or partnership? Or are you better off with one owner and all others employees. I often hear about partnerships being doomed to fail but can a corp. work or am I just playing semantics?
My associate and I are almost 20 years apart so we have different goals in our current stages in life. He would like to move more into management while I stay as a lead carpenter and bang nails. I have no problem doing this now, but I also want to be more than an employee and share in the direction of the company.
Can we make this work??? Any and all advice is appreciated.
Replies
I have heard that partnerships have more legal problems than corporations do. (Like the partner can leave you with all the debt and so on if he just up and leaves.) You might consult an attorney (one who specializes in such things) or at least ask an accountant. There are some lawyers who frequent this site, so maybe they'll respond. Ironically, despite bad things I've heard about partnerships, I think most (all?) legal firms are partnerships.
"I also want to be more than an employee and share in the direction of the company."
I doubt this will ever happen.
"Can we make this work???"
Partnerships of course, have occasionally worked in the past, but I think it's highly unlikely. Considering the age difference, the size of his business compared to yours, and the egotistical nature of many people in this trade, my guess is he's telling himself right now: "vintage1 is my apprentice." I think it would be very unlikely that he would ever truly respect you as a partner.
I know, pretty pessimistic. Who knows, maybe it'll be a great business opportunity.
-T
A couple things for thought:
Do you really need a partner? And I mean really need a partner. Think long & hard about if you can do it yourself.
If you do become partners figure an exit strategy the same time you’re figuring your start up plan. What if he wants to sell? What if you want to sell? What if you want to buy him out, him buy you out? I think they call it a Buy/Sell agreement that covers a lot more than just that.
What if he passes on and his wife (or estate) takes over his half. You’re now a business partner with her. Think about it.
Definitely meet with your attorney and don’t use the same one that you’re potential partner uses.
John
I have been working "with" another guy for 18 years. He has his own insurance, etc. That has worked great. I'd say a formal partnership would be a bad idea.
I had a chance to talk informally with a lawyer who specialized in helping businesses organize in various ways. He will help anyone form a partnership, but in 20 years of practice he has yet to see a 50/50 partnership that works well over the long term. Not one. Zip. Zilch. Nadda.
There are ways you can grow independantly of your partner while still working together. Either, or both, of you can hire employees and work multiple sites as is.
I'm having a problem imagining a situation that would be better served by a formal partnership or corporation rather than an agreement between two individuals or independant corporations (if you want to incorporate).
Working together makes sense if it's good for both of you, but I'd stay well clear of a formal 50/50 partnership.
I'd say a marriage is a partnership. They work if you and your mate have the same goals. But it's not easy. I think a professional partnership COULD work, too, but it would have to be a very special relationship, similar to a marriage, nothing to be taken lightly.
I don't see the mentor/apprentice relationship necessarilly killing the relationship either. What's age got to do with it?
Mutual respect. That would have to be one cornerstone of the relationship...but then again, I guess you could say the same for ANY lasting relationship.
What do YOU think? What does your gut tell you? Do you trust the other person enough to assume their debts? To let their code of honor reflect on your reputation? Is it clear to you what's "in it" for you, as well as what's in it for the other person? Tipi, Tipi, Tipi!
http://www.asmallwoodworkingcompany.com
Thanks for the replies so far.
Some good points to consider, like taking over someone else's debt. I don't think either one of us are prepared to do that today, but then we didn't help the other incur said debt. I don't know if I would feel differently if it were incurred "mutually."
Mutual respect is also key. Currently we respect each other, but things could always change.
Wife or future wife becoming part of the business is another issue to consider.
I don't expect someone to give me the "magic" answer, but we (partner and I) obviously have many things to discuss.
first, I don't think you were asking about whether the legal aspect of partnership is the appropriate form for doing business, but whether two guys can have a business together and make it a go. The answer is absolutely yes, and there are thousands of "partnerships" that work and are very productive and happy.
There are pitfalls, and it should be understood (and formalized) about what each puts in and gets out, and what happens if and when problems arise. The marriage analogy is the best one. You have to be able to live with the other guy, realizing that every day will not be perfect and disagreements will happen. But that doesn't mean that it can't be a great symbiotic relationship.
My experience is that the most viable "partnerships" involve people who are of different ages and have different experiences. That way, they don't tread on each other as much and appreciate that the other brings something to the table that is needed and helpful. If your "partner" adds nothing that you don't already have, then who needs him?
You have to be prepared to make concessions when he's having a bad day, just like he has to when you're having a bad one. When your "partner" makes a bad call, you have to be okay with living with it, just like he has to do the same. Is this impossible to do? Not at all. In fact, for many people, they really need and enjoy having someone they can talk to, work with, bounce idea off and support them when they need it. Even though it may not last forever, there's no reason why two guys who work well together, appreciate what each other brings to the table and realize that give and take is a two way street, "partnerships" can make for a successful and happy business.
SHGFor every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
two more thing: All business relationships have the potential for problems, and also provide the means for resolving those problems. Partnership agreements deal with all those nasty issues like death and debts. No big deal.
Second, while guys around here love to raise legal red herrings, which they then qualify by saying go talk to a lawyer, don't let them either scare you or create fake issues. The legal issue comments are mostly nonsense. The form of business entity and agreements easily deal with all the obvious issues, and that's why they exist.
Problems arise because the people involved shouldn't be involved with each other. If the wrong people get together, then no form of business entity or agreement is going to make it work. If the right people get together, then the form of business entity and agreement has absolutely nothing to do with how well their business relationship will work.
SHGFor every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
SGH,
Thanks for your reply. You are right, that I am less concerned with the business entity and more interested in whether people are successful in developing and growing a business. Your comments below are right on. As we continue our process, we will need to identify if we are the right people.
"Problems arise because the people involved shouldn't be involved with each other. If the wrong people get together, then no form of business entity or agreement is going to make it work. If the right people get together, then the form of business entity and agreement has absolutely nothing to do with how well their business relationship will work."
Jim,
Your analogy of the marriage is very good. I know that you have to work at marriage to make it successful.
My gut tells me that he is an ethical and honest person and we can both get to where we want by pooling resources.
Thanks
I've posted to this subject before... only because "been there done that"
just some fuel for thought... if you can live with
nothing is ever 50/50, no one ever sees things exacly the same,
you will always do more work and contribute more
you will always take the smaller portion
you will always get paid less
you will get less respect
credit will never go to you
all problems will be caused by you
you like pay'n bills incured by others
if you can live with all the above and be happy... get a partner because all the above will come into play ... real or just thought to be real... doesn't matter as i said no 2 people view things the same ever... period... I've made others more $$$ than I've made on deals many times and I still felt they felt cheated...
I'm dumb enough to have taken partners when i didn't need to.... I'm in 2 deals now one is OK because i knew on the front end all of the above and expected nothing less... the other involves a new partner added ( a guy got married) now she thinks we're partners... yeah right...
p
Can a partnership work? Over time? Realistically? No.
On the other hand, your business can easily share projects with his business. Grow your business. Help him grow his. Be "buddies".
Its the changes that kill you. What to do when he wants to retire?
Gets a lengthy illness. Divorces? (Trust me!).
There's no need to get legally attached. Just do business together.
Brooks
From my experience in several "partnerships"....don't do it.
There are two things to consider, as mentioned previously: compatibility and legal issues.
Those most compatable are those, as mentioned, who overlap the least, have skills to offer the partnership and respect what the other offers and depend on it. Marraige is the the best analogy.
I've known a few partnerships that have lasted, with the two most successful being between brothers. However, most otherwise successful partnerships last until the personal assets reach a point where they need the protection of a corporation or LLC.
So why not just form a corporation: easy....money. Partnerships cost very little to form or dissolve, all profits are pure pass-throughs and accounting is relatively easy. They tend to work best in the early years of a professional business relationship.
Corporations are quite a bit more expensive to set up, maintain and account for. And caution when talking with a small business attorney...its is more profitable for them to set up a corporation than partnership.
If you form a partnership and value builds, you'll be well advised to cross-purchase life insurance policies, so you'll have the means to buy out a deceased partner's interest from heirs. NO, heirs won't be partners, as all partnerships dissolve on the death or departure of a partner. But you will have to define how interests will be transferred on dissolution or death.
Partnerships can and do work....but think through carefully what you are doing with your partner(s) and all likely contingencies. You don't want to get down the road and be unpleasantly surprised. Like marraiges, forced dissolutions can be expensive.
BruceM
Bruce -
I don't know why you say corporations are much more expensive to from and maintain, especially small ones.
When I was practicing law, the difference in the formation was about $500. Maintenance was comparable - in a corporation, you need an annual meeting for the books - essentially a dinner meeting on the corp. Taxes for a small corp (s-corp) are pass-thrus to the shareholders.
Whether it's a partnership or a corporation, the people behind the organization are important. The idea of a partnership/shareholder agreement is important because it helps people see some of the potential issues in advance and discuss them before they surprise anyone.
Don K.
EJG Homes Renovations - New Construction - Rentals
Don,
Are you coming to tipi? If so, send me an email.
Scott
Your partnership will work vintage.
Look into the benefits of an LLC.
Discuss your exit strategy.
blue
I've been waiting for you to weigh in on this one - knowing that you have a successful partnership. Could you offer any insights into why/how it works for you?"...never charged nothing for his preaching, and it was worth it, too" - Mark Twain
Huck, I have four different partners (three active and one passive) at this time on four different projects. I'm talking with another now to either join us in our investment group or start a fifth partnership. We've had one meeting and have another set up for this weekend.
I also have a partnership in my marriage of 33 years.
Partnerships are what you make of them. If you are always trying to take something out of it, instead of putting something into it, they won't work.
Partnerships are about pooling resources. It's as simple as that. The latest partnership I'm considering puts our firm at the disposal of the other guys money. He's got money, time and credit and we can build things. It's a perfect match.
Now that I think of it, I just realized that we also have another partnership with our firm and another investor. He funded a spec house that we have on the market right now.
I enter into partnerships because I'm not afraid of them. Most of the ornery old codgers in here are afraid of them. They can't even look themselves in the mirror in the morning and say "good morning" so they also can't treat a partner in a civil manner. A lot of tadesmen are too independent for their own good.
blue
What do you guys invest in?
I heard a local builder today looking for investors, this guy has alot of stuff cooking and just needs someone to push him over the top of the hill. Subdivisions, condos, that type of stuff.
Maybe something to look at for you guys or not. If so let me know through the forum here. I'm only half as dumb as I look.
Thanks - I asked because trying to get my 1-man business into second gear, I become painfully aware of my limitations, despite a lifetime in the building/remodeling trade. I often wish I had a partner with the legal/business/marketing skills I lack, and maybe a little capital too!"...never charged nothing for his preaching, and it was worth it, too" - Mark Twain
I often wish I had a partner with the legal/business/marketing skills I lack, and maybe a little capital too!
Huck, there are people out there with legal/busines/marketing skills AND CAPITAL, that don't have your construction skills. They will profit off you, just as you will profit off them. You need to find them. Try advertising. Start talking to strangers more.
I just had a very nice meeting with a retired gentleman this weekend. We found that we are quite compatible and both see the opportunity in the undervalued, underused resort town. We will be doing something together soon. My needs are similar to yours, yet slightly different. I know I can raise the capital, but I can't afford to take on the risk if the projects don't move as fast as I think they could. If I had to make the juice payments for the next year, in the face of our strained construction business slowdown, it's quite possible that I could go bust. There's no reason why I should take on such a risk, when I can partner up with someone that has deeper pockets and can weather the storm. Financially, we are a good fit for each other. He needs me-I need him. We'll both make some money...that's the fun part.
Technically speaking, he doesn't need me. He could find any contractor to do the work but....BUT.....the other contractors aren't sitting down and talking to him! They see an old man. I see a wise retired gentleman. They see a fat old guy eating alone. I see a guy that I might relate to and someone that I might like to know more about.
Huck, if you are out there in the world talking to people, opportunities will present themselves. I don't talk to every person just because I'm looking for a meal ticket but I talk to people because they are interesting and they have something to say. That's why I converse in here with people. Sometimes the people that I am talking to lead me down interesting alleys. For instance, I made friends recently with a small shop owner in town. I like her cafe and I like her. She's not particularly well to do and her operation is quite modest. Last week, she told me something that made my ears perk up: her already wealthy son just inherieted 700k and was going to invest it in a franchise as soon as he retires from the service. I don't have a franchise to offer, but if I run across something that might make sense, you can be sure I'd float the idea past her, so she could run it by her son.
Partnerships are what you make of them. They are not right for some people because their nature won't allow them to work, but they work quite well for a lot more people. When you look at real estate, it's safe to bet that most real estate deals involve more than one person.
blue
They can work, but it takes the right people.
One of my oldest friends is in a construction partnership. He does the bidding, estimating, cost control, and basically all office work. His partner is the site supervisor. They build very fine homes in the Santa Rosa, CA vicinity. I think they've been in business together for almost 15 years. Both were independent before that.
+++++++++++++++++++++++++++++++++++++
"Doubt is not a pleasant condition, but certainty is absurd." Voltaire
I have been in a partnership for over 25 years and am happy with it. We have three partners now and have had two other partners who left. All five of us had a positive experience with the partnership. The departure of the two was simply handled by the original partnership agreement and by the fact that we retain a fair amount of capital in the business.
A partnership is like a marriage though it doesn't require the same emotional nurturing. When asked about why our partnership works, I say that my partners put my interest ahead of their own when they come in conflict. I try to do the same.
As long as our goals remain compatible, we will stay together. When our goals deviate, we will split. There will be no recriminations or regrets.
Thanks to all, for the replies.
While there is some caution (and some of it very strong) my summation is that if the right people enter into this business entity, it can be successful. I certainly don't doubt the people who have replied in the negative, their opinions are based on lessons learned, but I am glad to hear that at least some have been successful.
The "right people" can have many definitions, and time will tell if my venture qualifies.
Mutual respect, complimentary skills, common goals, and clearly defined expectations will certainly be a big part of this equation.
Thanks again.
I'm one of those people who has had the experience of attempting a partnership and having it go completely to heck. I basically learned that everything I thought I knew about my partner was in fact wrong. My wife and I came away from that situation having lost our entire life savings. And both my partner and I came away from it having lost a friend. I will someday forgive him, but we will never be friends again.
The most important lesson I learned from it was that the only person I would ever enter into a business partnership with is my wife.
Now, I do have a few bits of advice for you because I believe that it is possible to have a succesful partnership . (just not with the guy I was in business with...)
First of all make darn sure you do everything right legally. Set up a corporation, I don't think you can have too much attorney involvement, especially during the initial setup phase.
COMMUNICATE!!! with your potential partner. don't just pay lip service to this... talk with him at length about what each of your plans are. Where does he see himself in 5 years, where does he see you in 5 years? where do you see yourself and him in 5 years... what are each of your business philosophys? what are the differences that each of you have concerning how the company is gonna grow? Make sure you both describe this in detail to each other. You would be surprised just how different his views might be from yours when it's actually verbalized.
Make certain when you are setting up the corporation that everything is commited to writing as far as specific division of duties, and financial compensation for said duties. This was the biggest mistake we made, we just did the old "I'll do this part and you do that part" and we'll split everything 50-50 handshake agreement. (by the way, when your partner manages to overspend like a drunken sailer with a terminal illness, you find out that 50% of zero is kind of hard to live on. But it sure made taxpaying time easier... ;-)
You have to have everything spelled out and recorded no matter how well you both feel that you can trust the other. It's not a matter of being trustworthy, I am absolutely certain that my ex partner is completely honest and trustworthy, however that didn't stop his almost comical stupidity from ruining our business and my own financial state in the process.
In my opinion, the safest way for both of you to protect yourselves is to set it up as a corporation with both of you as employees of said corporation, being payed according to whatever duties you perform. But in your case, that is something for your accountant and attorney to advise you on, not some faceless person on a posting board.
And last but not least, Make absolutely certain that both of you have complete access to the "books" and share in the book keeping duties. Don't let this fall exclusively on one partner. Stay in constant communication with each other in this department. I made the erroneous assumption that my partner knew what he was doing when it came to running a business, since he already had his own business and seemed to be doing pretty well as far as I could tell. Boy what a stupid and costly mistake that turned out to be!!!
You can make a partnership work, but it has to be based on sound business principles, not on mutual respect and trust. Regardless of how you both feel about one another, set things up as if you cannot trust each other. That is the only way it can work. I actually think a partnership has a better chance of working if it's with some one that you don't particularly like or trust, that way you don't take anything for granted.
Sort of like the difference between socialism and capitalism... Socialism is based on the premise that everyone is fair and just wants to be treated and treat others fairly. It completely ignores greed. Capitalism is based on greed, and assumes that other people are gonna try to take advantage of you. That's why capitalism works and socialism... well look at the soviet union.... As long as you go into this recognizing that there can and will be issues and problems such as marraiges, divorce, death, changes in personal goals, differences of opinion on company direction, etc. you can make allowances for these issues in how you initially structure the business.
I'm not trying to scare you away from doing a partnership, just saying that it's not something to be entered into lightly. Make sure you have all the ducks in a row, both legally and clerically. and make sure you both actually address the unpleasant issues before you start instead of assuming that it's not gonna be a problem because you both trust and respect the other.
Good luck!!!" If I were a carpenter"
My experiences with partners have taught - basically you have to do twice as much business to make the same amount of money-Go it alone, I bet you can hire his talents cheaper than 50% of the money
Although i have no experience with a partnership perse I do know a few basic things.
1. You can never fully appreciate someone's perspective if you have not been through their experience. In this case, those who are boo-hooing partnerships may have very valid and real reasons...but you and I don't know what led to their problems. Did you rush into the partnership? Did they not properly communicate? Did they not follow sound principles when formalizing the partnership? There are hundreds of reasons for failure. It is impossible to gage your potential for success off of someone else's failures.
2. Clear expectations and understanding go a long way to a successful endeavor no matter what it is. Do you home work now and it will pay dividends in the future. Know his role...know your role...know his goals...know your goals
3. Planning...you cannot do enough, especially legally. Cover as mush as possible up front and rocky trails ahead will be much smoother.
4. Do be afraid to follow your dream and take risks. No one who ever established a successful business didn't suffer set backs.
I say be delibrate and go for it. Your path will lead you to the answer of your question. After careful review you may decline this partnership or you may carry forward. It may fail but it may also be the best decision you have ever made. But you won't know unless you try. Just make sure to establish your risk tolerance and balance your planing around it.
MCF...... Very well said" If I were a carpenter"