As two of the Grill’d burger chain founders do battle in court, here are three lessons to learn.
Best friends forever
Going into partnership with a friend can seem like a great plan; you know each other and get along. And the longer you’ve been friends, the better.
The story of the Grill’d burger chain sings to a similar tune. Simon Crowe wanted to start a healthy burger business in 2004 and offered 20 percent to two of his friends; Simon McNamara, a childhood friend, and Geoff Bainbridge, a former colleague from Fosters he met in 1999.
According to a Fairfax Media report, the combined investment of $500,000 into Grill’d expanded the business to 140 stores by the middle of last year. More than 80 are company owned and the remainder are franchises.
Going pear shaped
By 2011, the partnership began to go pear shaped when McNamara and Bainbridge became involved in other businesses. Crowe bought McNamara out of the Grill’d business in 2011 has since taken Bainbridge to court.
So what are the lessons to be learned?
Rob Toth, partner at Marsh & Maher Lawyers says there are a few things to consider before going into a partnership.
1. No easy way out
“Like a marriage, business partnerships are not easy to exit from,” says Toth.
“People go in with the best intentions at the start, but exit strategies need to be considered especially if situations change."
He says there are three ways a partner can exit from a partnership agreement:
Buying out a partner: if a partnership isn’t working and this option is taken, the price and terms of a buyout are usually specific and documented.
Sell back on the market: selling a business to the market can often take up to six to eight months, but partners can still gain goodwill from the sale.
Strike account: also known as dissolving the partnership agreement, this approach strikes out the business 50/50, but partners sacrifice goodwill from the business this way.
Depending on the complexity of the dispute, exiting a partnership can take anywhere between a few months to a couple of years to resolve.
2. Draw the lines early
Toth explains that it is very important to be very clear about the roles of each partner when drawing up an agreement. Things can become complicated if one person invests into a larger share of the business, if one partner works in the business and others decide to be silent investors. Or even if all parties have agreed not to take a salary until the business makes money. Partners should be clear about how profits will be distributed in the business.
“The falling out can be so emotionally entrenched that business sense goes out the window,” he says.
3. Trust is key
Above all, Toth explains that a lack of trust is one the key aspects that define the dynamics of a partnership. In his experience, he says there’s no such thing as the ‘seven year itch’; partnership disputes are varied in each case.
Often in the excitement of going into partnership, parties can become so caught up in the thrill that the difficult questions aren’t asked. Some of these include:
- What happens if the business fails?
- If the business succeeds, what if a partner has other interests?
- What if a partner becomes unwell?
- What if one person can no longer commit?