Thinking About a Partnership? Here’s What You Should Know
Partnerships can be a great way to grow a business, especially in fields like construction, where the right mix of experience and resources can make a huge difference. But partnerships come with their own set of challenges and decisions that you need to be aware of before jumping in. Recently, we took a question from a viewer named Steve, who wanted some advice about joining a partnership with his former employer in the excavation business. Steve’s got 15 years of experience, including 9 years in commercial excavation, and his potential partner has been focusing on residential work and owns some key equipment. It’s a situation a lot of folks in the construction field might find themselves in, so let’s break down what to consider before signing on the dotted line.
The Basics of a Good Partnership
First things first: not all partnerships are created equal. Sure, there are plenty of successful ones out there, but there are also many that fall apart. So, what’s the key to making it work? Start by understanding that someone will have to be in charge. A 50-50 partnership sounds fair in theory, but in reality, it’s tricky. If both partners have an equal say, who makes the final call when disagreements pop up? To avoid deadlocks, one partner should ideally hold a 51% interest—enough to have the final say but still close enough to keep things fair.
The Control Factor
Control is a big issue. If the person you’re partnering with is the one with the deeper pockets or is providing most of the resources, they’ll probably want more control over the business. In Steve’s case, his potential partner owns key equipment like a Doosan 140 and other machinery, which means he brings a lot to the table. But Steve has the know-how and commercial experience, so he should be thinking about how much say he’ll have in decisions that will shape the future of the business.
Expect a Buyout Plan
If the partner you’re joining forces with is planning to retire in a set number of years (like Steve’s potential partner, who plans to retire in 10 years), this is something that needs to be addressed right up front. Chances are, you’re not going to just inherit the business when they’re ready to bow out. You’ll need a clear buyout plan that both parties agree on. This could be an agreement where you pay a certain amount over time or another arrangement where they receive a portion of the profits after stepping away.
Legal Agreements Are a Must
A handshake agreement might feel good in the moment, but it’s not going to help you when issues arise (and they will). Make sure to draw up a written contract that covers everyone’s responsibilities, profit splits, and plans for when the partnership ends, whether it’s after 10 years or because of unforeseen circumstances. Even if it’s not filled with legal jargon, a basic document outlining the expectations and commitments is essential. It’s something that helps keep everyone accountable and on the same page.
Transparency Is Non-Negotiable
Transparency should be the foundation of any partnership. This means being open about profits, expenses, and general business dealings. Everyone should have access to financial documents like profit and loss statements and project reports. When times are good, everyone shares in the success. But when projects don’t go as planned, being upfront about where the money went and why things didn’t pan out is just as important.
Lessons Learned from Experience
If you’re still on the fence about whether a partnership is right for you, remember that even seasoned business owners have mixed feelings about them. Partnerships can be a great way to boost your business without taking on massive debt, but they require careful planning, clear roles, and trust between partners. And as one experienced contractor said, your mind will always outwork your hands. The most successful foremen and partners aren’t necessarily the ones who get their hands dirty the most, but the ones who are thinking a few steps ahead and making sure the team is set up for success.
Final Thoughts
Steve’s situation isn’t unique. Many in the construction industry find themselves at a crossroads, considering whether to partner up with someone who brings complementary skills or assets. The key is to go in with eyes wide open, knowing that a partnership is like a marriage: it can bring great rewards, but only if both parties are prepared for the challenges ahead. Have those tough conversations early, put everything in writing, and keep communication open. With the right approach, partnerships can work and be very successful—but only if they’re built on a solid foundation.