It STARTED as a Great Partnership

IT STARTED AS A GREAT PARTNERSHIP

Steve, Robert, Jim and Samantha started a business as equal partners. Each of them brought something vital to the table, so they decided that each would be a quarter-owner.

Steve owned a home and had a line of credit, so he put up most of the money to get things started. None of the friends had much cash on hand, so it was Steve’s credit that paid for everything. According to the partnership agreement, he would be fully paid back out of profits before anyone would receive more than a basic salary.

Robert and Jim were the technicians, and they would go out and service the customers. They each had their own tools and trucks already, so there was no extra outlay for them to get started. Samantha was an experienced office manager, so she would handle the phones, billing, customer contact and general administration. Steve also had some skill in both sales and marketing, so he would handle that.

As they got started, things seemed okay. Steve and Samantha both worked hard setting up the business and trying to get it off the ground. Samantha was putting in nearly 100 hour work weeks to get everything set up. Steve was putting in similar hours working the phones, getting out to meet people, networking, and developing all the marketing materials. The money Steve put in was going fast.

For the first few months, Robert and Jim had very little to do because they only had a few customers. As Steve was more successful at marketing, they got more calls and his sales converted more and more to customers. Soon, Robert and Jim’s schedules started filling up. Because of some delays getting paid, Steve ended up putting in another $10,000 to the partnership to keep things afloat for a little while longer.

Soon the money started coming in. All four partners got along well, so the partnership ran smoothly. Steve’s work week dropped down to about twenty hours a week once he had created a steady flow of customers through his marketing and sales efforts. Samantha was able to drop her work week down to just 40 hours once she had all her systems in place. Jim and Robert were working anywhere from 30 to 50 hours a week.

The first thing they did was pay Steve back that last $10,000 he put in. The extra profits from just two months was more than enough to do that, and everyone was happy. The plan was after that, they would be back to their original agreement. Steve would be paid back with the interest agreed to at the start, and everyone would have their base salary and a quarter of the extra profits after that.

Steve, Robert, Jim and Samantha looked to be on a path to a very successful partnership. After just seven months, they were already looking at a profit and had paid Steve back the extra infusion. By the end of the first year, Steve should be paid back the rest of the money he put in, and then all four of them would have a great income!

It was a job well-done with a partnership that was running like a well-oiled machine. The four friends got alone well, and everyone was happy.

PARTNERSHIPS START WITH FRIENDSHIP AND HOPE

In the early days of any partnership, everyone is friendly and filled with hope. Often, partnerships are formed with long-time friends with a mix of skills. In the beginning everyone gets along, it’s share and share alike, and everyone is ready to work hard.

Partnership agreements are not required to run a partnership. In fact, many partnerships do not have any kind of agreement at all. Those that do often find a sample agreement and use that as a simple template to build their own agreement. Sometimes they take a standard boilerplate template that might have a lot of things that don’t really apply, which create problems of enforceability because of how mismatched the business may be with the agreement.

In the case of Steve, Robert, Jim and Samantha, they just made a simple agreement. Mostly it was to establish the terms by which Steve would be paid back from profits first, and afterwards they would split profits evenly. Other than that, the four friends figured their long standing friendship and their “perfect mix of skills” would lead to prosperous times ahead.

Of course, this will turn into a cautionary tale, so follow the rest of the story of things that might happen to the four friends…

The coming stories of Steve, Robert, Jim and Samantha are based upon stories that have actually happened to clients. Not all of the coming stories happened to any one client (but that IS possible), but all of the stories are things everyone should always be aware could happen.