Ending a Business Partnership the Right Way

Business partnerships are built on trust, years of collaborative decision-making and, often, an initial foundation of friendship. So, when a rift forms, or simply when partners’ goals diverge, the end of a partnership can be challenging to navigate, both personally and professionally.

Although ending a business partnership is one of the most sensitive transitions a business can face, there is a right way to resolve the underlying issues so that both former partners can continue on their separate professional paths.

Start with a level head

If your business partner tells you they want to exit your business, your initial reaction might be shock, disappointment or anger — especially if their announcement comes along with the hiring of legal counsel. Even if there’s no ill intent, these actions can be a clear signal that your working relationship is no longer constructive and needs to be wound up.

First, take some time to clear your head. This might be a decisive moment in your career, so it’s essential to stay calm and remain focused on long-term goals, not short-term frustrations.

Clarify where you’re headed

Once you’ve had a chance to regain your footing, take stock of your professional goals. Are you excited by the opportunity to carry on your business alone? Would a merger with another firm make sense? Or has the moment come to pursue an entirely different venture?

Your answers to these fundamental questions will help guide you in the direction where you go next, which could include selling your business, buying out your partner or seeking outside investors.

Understand your options

While the structure, liabilities and responsibilities of business partnerships can vary significantly, there are four scenarios for unwinding a partnership:

1. Partner A buys out partner B.
2. Partner B buys out partner A.
3. The business is divided into two independent entities.
4. The entire firm is sold to a third party.

It’s always better, from both a financial and personal perspective, to attempt to end a partnership amicably. The moment attorneys get involved, you can expect the negotiations to take longer and cost more than you would like.

Assemble a trusted advisory team

As you work toward ending your business partnership, one of the wisest things you can do is to gather together a trusted team of advisors representing a variety of specialties. No one person can know everything, but surrounding yourself with a range of perspectives will ensure that you’re giving the complex business issues at play the proper depth of thought.

Make sure that these specialties are represented on your team:

• Banking: A banker can help you think creatively about how to fund a buyout or adjust cash flow. They might also be able to identify recapitalization paths that preserve your business’s continuity.
• Wealth advisor: A personal financial planner can help you assess how the transition affects your long-term personal financial stability — especially if you’re considering walking away entirely.
• Legal: If your partner has retained an attorney, you have no choice but to do the same. Even if the other party’s tone is cordial, you’ll want guidance from a legal expert who can interpret your original partnership agreements and protect your interests.
  
  

With each voice at the table adding a uniquely important point of view, your team will help you map a path that’s practical and grounded in your long-term interests.

Review your partnership documents

Before negotiations begin, take a fresh look at the formal agreements that governed your partnership. These documents, which might detail buy-sell provisions, valuation formulas or dispute resolution processes, will be your best guide for navigating your current situation. Understanding your legal rights and responsibilities will put you in the best position to negotiate from a place of strength.

Always take the high road

The ideal scenario is for both parties to treat one another fairly and respectfully as they go their separate ways. But not every breakup goes smoothly. If the other party is contentious, resist the urge to match their tone. Instead, focus on getting to solutions in the most non-argumentative way possible.

Sometimes, an experienced lawyer with a collaborative mindset can work behind the scenes to defuse tension before it escalates. With the right approach, even a rocky start to separation can lead to a clean and respectful resolution.

Preparing for what’s next

Not every business partnership is meant to last forever. Sometimes, circumstances shift or goals evolve. When that happens, the healthiest response is not to resist the change, but to manage it well. With clear goals, an experienced team of advisors and a willingness to engage thoughtfully, you can transition out of your partnership in a way that sets both parties up for success in their next chapter.

About Frank Williamson

Frank Williamson is the founder of Oaklyn Consulting, a different kind of investment banking firm for small- and medium-sized companies under private ownership. Oaklyn plans and executes its clients’ most complex transactions, including mergers, acquisitions, capital-raising, recapitalizations, and lender and investor relations. Oaklyn supports businesses, investment firms, nonprofits, co-ops and partnerships. By working as consultants, not brokers, Oaklyn helps in situations where traditional investment bankers typically cannot.