When partnerships work, they’re beautiful, when they don’t, it’s a disaster, says John Thornett. How can you avoid the worst?
In pharmacy land there has been some seriously impressive partnerships that have been formed and gone on to huge success. There have also been some bitter and ugly “divorces”.
Partnerships are certainly not for everyone. Some owners I know work well on their own, but not very well in a partnership.
The best of intentions
Partnerships all start with the right intention. Parties come together to buy a pharmacy or a pharmacist is introduced and buys into an existing pharmacy. It is an exciting time! Goals are set, everyone is on the same agenda, ambitions are laid out. And it all goes swimmingly well……
Yeah, I have seen best friends become business partners. Brothers, sisters, in-laws, work mates, all sorts of combinations going into business together.
Often at this stage people will often say a partnership agreement is not necessary. They say its too expensive, not necessary, “we will worry about it later”.
So, tip number one, I can guarantee you there will be some stage of your partnership where you will have to rely on that agreement. Please, please, please, insist a partnership agreement is drawn up and signed before you ahead and get pharmacy married.
Then what if you are in a partnership and its starting to get dysfunctional? What if your individual goals are starting to conflict? Your ambition levels and appetite for change are starting to differ? What if its getting too messy?
What are the conflict management options?
Here are some options below on how to manage any conflict when things aren’t going well:
- Start having honest discussions about each person’s goals and vision for the business. I find this is often a good start to the process. It is not confronting at all and it is done in a very positive environment. When people start talking about their long-term goals and vision for the business, you sometimes get conversations and opinions that have never come up before. You can quickly discover whether your business goals are aligned or not.
- Create discussions about what is the best way forward for the partnership and the business. If serious issues and differences do come up, it is time to start having an honest, but not confrontational discussion about the partnership. Are the differences able to be overcome? Can both partners make concessions to enable the business and the partnership to continue and function at an optimal level? Can you plan for a mutually agreeable plan and timeframe going forward? Perhaps the individual partners need to change roles. Perhaps there needs to be a planned buy out over a period. Or can you both agree on who continues with the business and who exits? The ideal outcome is for both parties to sit down at the end and can still have a beer/wine and talk as friends. That is what you want to achieve
- Be careful the business doesn’t become the loser; this is often the case when partnerships do breakdown badly. It is like a cancer spreading. The tension between the partners spreads to the team. The vibrancy and connection the team had starts to break down. Rumours start spreading, ill-informed opinions are made and start to spread. The culture goes and sometimes a toxic atmosphere starts to take over. Before too long it’s the business that suffers. Customers leave, turnover drops and profitability drops. Accusations start flying, and……well……its not very nice.
- Make sure you get your lawyer and your personal accountant in early. It is important at an early stage when the partnership has broken down, to go see your accountant and lawyer and start assessing what your options are. This step is vital as now is not the time to make mistakes and say the wrong things.
- Ensure you have all parties commit to an agreed process early. When partners do start arguing I find it helps to get the parties to commit to a process early and become binding to outcome. For example, some will often appoint independent valuers to assess the value of the business, and/or the value of the partners interest. Sometimes 2 or 3 valuers can be appointed. The parties agree to pay half the costs and be bound by the outcome.
- Appoint independent adjudicators if the parties cannot agree to determine the value of the respective party’s interest in the business. As mentioned above, independent bank panel appointed pharmacy specialist valuers are often needed here too and are critical when disputes arise. The respective accountants and lawyers may not be community pharmacy specialists and therefore may not have the correct knowledge.
- What’s the worst-case scenario? If the partners can’t come to an agreement often it’s the business that has to be sold and the market will determine what the business is worth. Often it gets sold for less than what is potential is, as by this stage the trading performance is declining, and the fighting has taken its toll.
It’s not easy, it is often a long, emotional and costly exercise. It will take its toll on you both and the business if not handled correctly. Being emotional and still being able to make rational, objective business decisions is not easy at all.
Overall money makes people go funny (not funny haha, but funny weird). When disputes arise, money makes people turn and become very emotional, sometimes irrational.
So be careful. Not all business partnership works out, but it doesn’t have to be a huge fit either.
John Thornett is Director of Peak Strategies, pharmacy business consultants