When you’re an advisor in a Firm of the Future, you don’t stop with just getting the numbers right and handling the compliance matters for your clients. You go the extra mile to help your clients run successful businesses. Partnerships are a popular structure for small businesses because of their tremendous flexibility, but that very flexibility can lead to trouble.
Here are some tips to help your clients keep their partnerships thriving and successful for years to come.
1. Build a real relationship. Besides the synergy that comes from two or more individuals having different skill sets, a solid relationship is crucial. Building a solid relationship that extends beyond the business creates a foundation that will help weather the inevitable ups and downs.
2. Keep communication open. The key to building a solid working relationship is open communication. Encourage your clients to set up regular meetings to talk about the business and to make plans for the future. At a minimum, they should meet quarterly. Monthly, or even weekly, is better. Offer to facilitate these meetings, or allow your clients to use your conference room, if they need a nudge to make things happen.
3. Clarify the responsibilities of each partner. Some people are natural networkers, and can bring in new business when they attend conferences or take prospective customers to lunch. But, to the partner who prefers hunkering down in the office to get the work done, that looks like goofing off. Setting expectations and the roles that each will play can go a long way toward fending off resentment.
4. Keep each other accountable. Setting business goals is always a good thing, but if no one knows who’s accountable for the tasks needed to reach those goals, nothing will happen. Regular check-ins between partners to make sure that each partner has done what they agreed to will ensure that the business achieves its milestones.
5. Document what each partner does. We never like to think about what would happen if someone gets hit by the proverbial bus, but that does happen. I worked with a mother-son partnership a while back in which the 70-year-old mother ran the business, while her 50-year-old son did the physical work. When his mom suddenly passed away, the son had no clue what needed to be done to keep the business going. Checklists, operations manuals and documented procedures can help keep things running smoothly.
6. Have a plan for partner incapacity. Make sure your clients have a plan for keeping their business going, in case one of them is disabled or passes away. Will the other partner, or other partners, be able to pick up the missing partner’s work? Will they need to hire outside help to pick up the slack? What happens to the business if the genius behind the business can’t perform anymore?
7. Review the partnership agreement regularly. Businesses change, and the roles and responsibilities of partners can also change. But, a partnership agreement that doesn’t reflect those changes can lead to problems. Changes in tax law or regulations may also be a good reason to amend a partnership agreement. For example, because of the changes under the new Centralized Audit Regime, which I wrote about here, most partnerships should consider amending their partnership agreements.
8. Develop key predictive indicators. Helping your clients figure out what metrics are meaningful to the success of their business may not be immediately obvious, and may not involve financial data. For example, when Gordon Bethune transformed Continental Airlines from the worst airline to the most profitable, he monitored the three things that airline passengers care most about: on-time arrival, lost luggage and customer complaints. What do the customers of your clients’ businesses care most about?
9. Establish ground rules for decisions. Is there a dollar threshold for purchases that requires consent from all partners? What about other business decisions? Which decisions can partners make independently, and which need agreement from the other partner or partners?
10. Make sure all partners have a basic understanding of partnership taxation. Getting a K-1 and receiving guaranteed payments and partnership distributions are different from a W-2 and a salary. Meeting with your clients to explain the differences and the possible need for estimated tax payments to new partners can clear up misunderstandings that can cause trouble later.
These tips are just a starting point to help your clients run successful partnerships, and are the key to being a true advisor for them. Proactive advice now is better than conflict resolution later!