The question: Can I avoid hiring an employee by making him a “partner”?
Steve’s answer: It would be more productive (and enjoyable) to smash your hand with a sledge hammer! 🙂
I don’t want to hire a tech due to all the costs and pain in the backside in general. But I also want to expand my company into some new areas. An acquaintance has approached me with the desire to work part-time in precisely the areas I want to expand into. (Specifically late-night commercial cleaning.) Since I don’t want to have him as an employee, I was thinking about having him join me as a “minority partner” and then we split the profits. This seems like a simple way to achieve my business growth without taking on the cost/headache of an employee. What are your thoughts?
Ready to grow in Boise
Good to hear from you Ready. And I applaud your desire to expand and diversify your company into commercial cleaning. It can provide a real boost in the slow season and positive cash flow year-round is always a good thing. I also “feel your pain” regarding the challenges hiring and managing employees involves. So what should you do?
Here is my straight talk on partnerships, regardless of how you structure it. For every “good” business partnership out there (Nick and John Paolella of Jon-Don have had a great one for over 30 years!) I see 1,000 disasters. So simply put DON’T DO IT!
You may feel that by making your “acquaintance” a partner you are avoiding the hassles of paying insurance, workman’s comp., etc. However, by making him a “partner” you will also sacrifice a portion of ALL your equity including the exponential growth of your business over the following years.
Even worse, Ready, do you really want to introduce the risk of day-to-day disagreement over the direction and management the business takes? I gotta say after considering the true expense to you of taking on a partner paying taxes and insurance for an employee starts looking really cheap!
There are always better alternatives to taking on a partner. Consider the following:
Most people go into a partnership because they are lacking one of three things- 1) money, 2) skills or 3) emotional support. (Or they may be lacking all three things in which case the logical question is, “Should they be going into this business in the first place?”) Let’s examine each of these needs:
1) Lack of money- Never take on a partner to fund your business. After all, that is why God created banks! (Or wealthy and loving relatives!) Borrow money and pay the interest on the loan. No matter how high the interest is, it will be infinitely less than splitting the pie in half when selling the company years down the road. Never give up equity and never give up control to save a few bucks in interest.
2) Lack of skills- Never enter a partnership just to acquire skills. Either educate yourself (carpet cleaning is not exactly rocket science) or hire someone who does know what they are doing. Pay them very well for their knowledge. The high salary they will earn will be infinitely cheaper for you than giving up half of your company AND it’s future sales price.
3) Lack of emotional support- This is going to be some VERY expensive “therapy”! Of course, the initial appeal of a partnership is not just about money and work. The emotional attraction of a supportive partner, someone to back you up and share the load, is very tempting. However, there are alternative ways to find emotional and practical support that do not carry the legal and financial baggage of a partnership. Your attorney, CPA or banker often will happily buy into your dream and become more than just advisers. Develop relationships within local business networks, industry trade associations and yes, even with some of your quality competitors.
And of course, don’t overlook the “partner” you may already have, your spouse. Now there is someone who has a vested interest in your joint success!
PS On the subject of “emotional support” don’t forget that your Jon-Don rep is always available. And everyone here on the SFS site is happy to be a “shoulder to cry on”. Plus you might check out the different industry discussion forums where you will find other people just like you working away “down in the trenches”.