Newbie

[storeowner]

Hi! New here, found the forum while scanning the web for business pointers and such.

I have a question. What if a set of partners has a fresh 60/40 relationship. Both partners are doing the best they can as far as putting forth many hours to get work done, but the 60% owner's "best" ends up being more than the 40% owner's "best"? For instance maybe the best the 60% partner can do is 75-80 hours in a week and they are exhausted, and the best the 40% partner can do is 50-55 hours a week, and they are also exhausted. It could be negotiable which partner has more demands at home (probably each one feels THEY do). Is this fine? What happens if guilt/jealousy arises in the partnership because the lesser partner honestly feels they are doing the best they can, and the greater partner feels more could be done? Say, the greater partner feels frustrated as if they are doing too much of the workload, but the lesser partner feels frustrated because they feel like they are giving as much as they can and are being made to feel guilty that they are not giving as much as the greater partner? The business is also still in some of the beginning stages of requiring more hours of work as well, actually more so than either partner is 100% comfortable with, although both partners knows the work needs to be done.

Thanks!

[StewardHill]

This problem you are talking about comes with the territory of having a 60/40 relationship. Unfortunantelly, that's the way it is. I used to be a 49% partner in a company and even that 1% made me realize, that I can do whatever I want and work whatever the amount of hours, there will still be a doubt in my partner's eyes. There will always be a power struggle in such business relationship.

One solution is to put everything that has been done by both these partners on paper, so there is some sort of documentation. However, communication is best for relationships private as well as for business ones. There needs to be a mutual understanding between the two and constant reassurance that the best 40 partner can do is really being done.

[Mark T]

Knowing your limits helps you accomplish and be on the right level for your company.

However in this case, where the other overwhelms the other - there are no other solution but to talk it together.
Question is, in the period of time (75-80 hours vs. 50-55 hours) how quality or efficient was the work done?

Sometimes, people only spend fewer hours yet create great results while some do work a lot of hours yet the weight of what they have done seems to be lesser than those who worked fewer hours than them.

[storeowner]

In this case the 40% owner feels they work a bit more efficiently, and the 60% owner has even said "You work quite efficiently when you are here" so the 40% owner feels they should not have to be there as many hours as the 60% owner. However the 60% owner gets easily frustrated if they find the 40% owner going home too much earlier than themselves.... The 40% owner feels often like they are busy trying to please the partner rather than grow the business. Part of it could just be in the 40% partner's head though. Both businesses started out with equal revenue...the split occurred because the 40% partner was not willing to put forth as much startup capital nor as many hours.

[ArcSine]

In determining the partners' split of the profits, the only relevant factor is the value each partner contributes to the business, relative to the total value contributed by all partners. A partner's personal circumstances are irrelevant, as is the matter of what % of the partner's "best effort" his contribution represents.

Suppose you and I team up to make and sell widgets. You have much more experience and expertise in widget production than me. You can crank out 500 widgets a week just by working 25 hours each week. I, on the other hand, am a lot slower than you, plus I spend a significant amount of time fixing my mistakes. Hence, I have to work 45 hrs per week to match your 500-widget production level.

Our profits should be split 50 / 50. It doesn't matter that I'm "giving my best", or that I'm working 80% more hours than you. We're not selling my hours, we're selling widgets, and as long as you and I are both turning out the same quantity of sellable inventory, we split the profits evenly.

You hinted at this issue in your follow-up post, mentioning that the 40% partner feels that s/he is more efficient, and hence can contribute the same amount of value to the partnership's profits, in a smaller amount of time.

And therein lies the crux of what will have to be decided: Are the partnership's revenues and profits simply a function of the number of hours worked, or are the profits a function of the value of the experience and know-how a partner's labor contains? In other words, in this particular line of work, is one hour of Partner A's time worth exactly as much as one hour of Partner B's time, or is the nature of this business such that one partner's hour might be more or less valuable to the partnership's bottom line as the other partner's hour?

As a side note, you also mentioned in your second post the matter of unequal contributions of capital. This is also a potentially important point. In addition to recognizing the (possibly differing) values of the partners' labor contributions, the profit split should also take into account differing amounts of capital contributions.

In the end, it'll come down to negotiation. But the negotiation should rest on a base of an objective analysis of all the factors (such as the nature of the business, and the value of labor and capital contributions); try to keep the subjectivity and the emotions to a minimum.

Here's wishing you success with the discussions, and long-term profits ahead!

[storeowner]

Thanks all!!! Well the nature of the business is that there are weekly deadlines that MUST be met, so both partners have to work together to meet the deadlines, regardless of hours worked, really, plus there are still some things that need to be done regarding the opening of the business as well. The 60% partner does realize they'll be putting a few more hours in, but the 40% partner just wants to make sure there are no hard feelings. Several conversations have already been had and things are improving....although the large number of hours being put in are quite a shock LOL. The nature of the business is that the deadlines are met as a joint effort, so the money also goes jointly to pay whatever needs paid.

[Choate Tables]

Partnerships are very tough especially at a 60/40. Still starting a business is a challenge in itself. Both of you will work a lot as you should be caring about the business while each of you wearing many "hats." A personal life will be even more challenging due to so many hours to keep this new business running, not to scare you but many married small business owners will end up divorced since you may not have any home life. Pending on your business you will be lucky to profit in this time, but if you do profit, for now the business should pay both of you a 50/50 and not a 60/40 as that profit could be very small, if any.

I recommend you use the 60/40 as a person who makes the final decision when making challenging changes or growth. If you sell the business then the 60/40 should be mentioned, but for now getting it organized, advertised, and even networking while working on the everyday needs of this business, this is going to take more hours than both you ever realized.

Here a tip, first get in the sales, be sure each item has a profit (That's your money), figure the hourly sales you need in a day with your fixed and variable cost. If your profiting then bring in an employee (most expense of any business), figure every employee is generating $5,000 in sales or more a month as you should be paying them $1,500 or more a month pending on your business and area. If you can not afford employees then yes you both will work many hours, this is just a simple guideline. Use each of your strengths, the 40% may be good at Marketing, networking and accounting and the 60% good at making the product and organizational skills with writing communications, use your strengths, don't interlock each other. Steve Jobs was the negotiator, speaker and ideas person, Steve Woz, the inventor to make it happen at Apple, they used each others skills.

I've started my business in 1988 with 50¢ and as a wise business owner told me when I was working round the clock in the first 8 years as well, "You need to run the business, it doesn't run you." also "run it like a McDonalds" get the systems in place so your working on getting to that 8-10 hour days, 5 days a week and for now worry about the 60/40 later. Don't worry about being the "cheapest," be fair and give a good product, your clients will come back to you. Doesn't matter who works more or less, "run the business" as it should be ran while organization will be the key.

[storeowner]

Partnerships are very tough especially at a 60/40. Still starting a business is a challenge in itself. Both of you will work a lot as you should be caring about the business while each of you wearing many "hats." A personal life will be even more challenging due to so many hours to keep this new business running, not to scare you but many married small business owners will end up divorced since you may not have any home life. Pending on your business you will be lucky to profit in this time, but if you do profit, for now the business should pay both of you a 50/50 and not a 60/40 as that profit could be very small, if any.

I recommend you use the 60/40 as a person who makes the final decision when making challenging changes or growth. If you sell the business then the 60/40 should be mentioned, but for now getting it organized, advertised, and even networking while working on the everyday needs of this business, this is going to take more hours than both you ever realized.

Here a tip, first get in the sales, be sure each item has a profit (That's your money), figure the hourly sales you need in a day with your fixed and variable cost. If your profiting then bring in an employee (most expense of any business), figure every employee is generating $5,000 in sales or more a month as you should be paying them $1,500 or more a month pending on your business and area. If you can not afford employees then yes you both will work many hours, this is just a simple guideline. Use each of your strengths, the 40% may be good at Marketing, networking and accounting and the 60% good at making the product and organizational skills with writing communications, use your strengths, don't interlock each other. Steve Jobs was the negotiator, speaker and ideas person, Steve Woz, the inventor to make it happen at Apple, they used each others skills.

I've started my business in 1988 with 50¢ and as a wise business owner told me when I was working round the clock in the first 8 years as well, "You need to run the business, it doesn't run you." also "run it like a McDonalds" get the systems in place so your working on getting to that 8-10 hour days, 5 days a week and for now worry about the 60/40 later. Don't worry about being the "cheapest," be fair and give a good product, your clients will come back to you. Doesn't matter who works more or less, "run the business" as it should be ran while organization will be the key.

Thanks! I sort of wished I would have known how many hours I'd be working ahead of time! I knew how many hours I was working at home (basically) and thought it would be translated okay to a store. WRONG.

We do both have families. Hopefully we can keep the balance okay. I've been tempted to bail SO MUCH as soon as I realized how much harder this was but I'm hanging in there because there's no other choice for now. The good thing is, we brought our current business with us, so its not like its totally from scratch. The bad thing is a store takes soooo much more maintenance and more bills to pay, so therefore more work needs to be brought in, in order to pay those bills.