Why Most Business Partnerships Fail (2022)

Business partnerships have many advantages as they allow entrepreneurs to pool complementary skill sets and share startup costs and risks with one another. Unfortunately, many of the advantages of partnerships can also be disadvantages, and statistics show that up to 70% of business partnerships ultimately fail. Take a closer look at some of the most common reasons why business partnerships break down, so you can make any partnership you enter a more successful relationship.

Key Takeaways

  • There should always be a partnership agreement in place
  • Clear communication is key in a business partnership
  • You need to be able to trust your business partner(s)

Mixing Personal Relationships With Business

Many spousal,family businesses, or partnerships between friends are successful, and the notion of starting a business with someone you know and trust can be very attractive. However, money can change everything.

Any successful business partnership should be based on the complementary strengths, talents, personalities,and experiences of the prospective partners. A relative or friend needsto bring much more to a potential business partnership than just their personal relationship with you.

Note

Even if you're working with friends or family, it's still very important to have a comprehensive partnership agreement in place so that issues such as finances and the division of work are clearly spelled out before starting the business.

(Video) Five Most Common Reasons Partnerships Fail

Done properly, a business partnership with family or friends can be rewarding and profitable, butunsuccessful partnerships can break up families or destroyfriendships permanently.

Unequal Commitment Among Partners

Starting a business takes a huge financial and personal commitment. As a sole proprietor, you alone are responsible for the success or failure of the business. In a partnership, you are dependent on the contributions of other partners, and if they are unable or unwilling to make the same level of personal or financial sacrifices, it will likely result in resentment and conflict.

A partnership based on one partner making a larger financial contribution and the other partner(s) promising to make up the difference in "sweat equity" might sound reasonable in theory, but "sweat equity" is difficult to quantify and describe in a partnership agreement. If the promised "sweat equity" is not delivered, the partnership is headed for disaster.

It may be difficult for a member of the partnership to be fully immersed in the business when they have other commitments, like family or work.

Warning

In a general partnership, the partners are individually and jointly responsible for all losses or debts. Consider other types of partnerships if you think you may want or need more protection.

Unequal contribution among partners may not present a problem if understood in advance, and fullyarticulated in the partnership agreement. Otherwise, it's likely to lead to strife among partners.

(Video) Why Do So Many Partnerships Fail?

Lack of Success

Building a business takes patience and perseverance. To build a successful business, the owners must be prepared to make a long-term commitment.

Lack of business and/or periods of declining revenuecan take a psychological toll on business partners and eventually lead to conflict, particularly if the business becomes a heavy drain on the personal finances of the people involved. If business isn't going well, the partnership should have something in place to renew motivation and assess barriers to success.

There are no certainties of success in business and the advantages of a partnership cannot overcome a lack of preparationor a business idea that is not viable. Thorough business planning before and after startup, including research on the target market,realisticcash flow, and revenue projections, and having sufficientdebt or equity financing availablewhen neededare all requirements for any business to prosper in the long term.​

Differing Values

Many partnerships do not succeed because the partners do not communicate their goals. As the business evolves the differences can become an increasing source of friction.

Before entering into a business relationship, prospective partners should meet and state:

  • Why they want to become entrepreneurs
  • What their vision is for the company
  • Their long-term objectives

Make sure you and your partner(s) are aware of the realities of owning and running a business. Potential partners need to be realistic about business prospects and temper their expectations accordingly to avoid possible disappointment.

Tip

Partners should discuss their goals and vision for the partnership before working together to make sure they're on the same page.

(Video) Why Most Business Partnerships Fail

Potential partners may disagree on their visions for the company and have radically different notions of the long-termgoals of the organization. For example, one partner may see the business as merely an alternate way to earn a modest living and have no wish for future expansion, whereas another partner may have ambitious expansion plans for the business, including havinga large staff, opening satellite offices, and taking the company public.

To avoid long-term conflict between partners, the company visionshould be agreed upon and described in advance inavision statement and ​sections of thebusiness plan should be used to formalize the long-term goals of the organization.

Personality Clashes

Sharing financial risk and having complementary skill sets are some of the great advantages of business partnerships. If you can't get along with your business partner, the business may beheaded for trouble.

Disagreements among partners are to be expected, but heavily contrastingpersonalities can amplify differences of opinion and lead to resentment and conflict.

Whenevaluating apotential partner, assess their personality by considering the following:

  • Are they a risk-taker?
  • Are they highly motivated?
  • How would they handle difficult situations such as dealing with problememployees, customers, and vendors?
  • What are their expectations of the partnership and the business?
  • Do they have the patience and perseverance to handle starting and growing a business?

Keep in mind that differences in personalitycan also be a benefit rather than a hindrance,providing you respect your partners, value their opinions, and have a shared vision for the business.

(Video) Why Business Partnerships Fail

Failure of Trust

An honest and open relationship between partners is the foundation of any successful business partnership, so nothing breaks down a partnership faster than a lack of trust. Given the shared liability inherent in business partnerships, illegal or unethical business practices by one partner put all other members of the partnership at risk.

While you can never predict with certainty that your partner(s) will always conduct themselves in an ethical fashion, you can mitigate the possibility by researching their history and reputation ahead of time. Find out:

  • Whether they have had otherbusinesses in the past and if so, how were they regarded by past partners, suppliers, customers, and employees
  • Their reputation in the community
  • Any previous legal difficulties
  • Their employment history
  • If they have ever been bankrupt,had a poor credit rating or been in difficulty with the tax authorities
  • If they are willing to agree to a written partnership agreement that outlines all the critical aspects of the business

In general, if someone has a history of stability and ethical behavior, they will likely be a more trustworthy business partner.

Bottom Line

Thoroughly scrutinizing your prospective partners in advance and developing a comprehensive written partnership agreement will improve your odds of having a successful, long-term business partnership. Part of your planning should include exit strategies from the partnership in case any of the above or other problems thwart the partnership's success.

Frequently Asked Questions

What Makes a Business Partnership Successful?

Strong communication, clearly defined goals and metrics, clearly defined roles, and complementary skill sets are key to building a strong, successful business partnership.

When Should You End a Business Partnership?

You might need to end a business partnership if you have major disagreements about business decisions, one partner is not contributing, or you and your partner cannot communicate anymore.

(Video) What I Learned After Countless Failed Business Partnerships

FAQs

Why do most business partnerships fail? ›

A failed business partnership can come from many things, for example, a poor management team, a lack of financial security, bad exit planning, or even children/family issues. A failed business partnership can be a matter of fact and not necessarily a reflection on the partners or their personal relationship.

What are the main problems with partnerships? ›

The most common sources of difficulties for business partners are disagreements over equality within the company, in areas such as power, equity and workload. It's important to find solutions to any business partner problems to allow your company to perform at its best.

How often do business partnerships fail? ›

Important lessons about business partnerships that one entrepreneur learned the hard way. If you're considering taking on a partner, think carefully first: 70% of business partnerships fail.

What is the main weakness of a partnership form of business? ›

Disadvantages of a partnership include that: the liability of the partners for the debts of the business is unlimited. each partner is 'jointly and severally' liable for the partnership's debts; that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts.

Do most business partnerships fail? ›

Business partnerships have many advantages as they allow entrepreneurs to pool complementary skill sets and share startup costs and risks with one another. Unfortunately, many of the advantages of partnerships can also be disadvantages, and statistics show that up to 70% of business partnerships ultimately fail.

What are the common reasons for business failures? ›

The top 10 reasons small businesses fail – and how to avoid them
  • Lack of research. ...
  • Not having a business plan. ...
  • Not having the business funding they need. ...
  • Financial mismanagement. ...
  • Poor marketing. ...
  • Not keeping abreast of customer needs or the competition. ...
  • Failing to adapt. ...
  • Growing too quickly.
6 Jul 2021

What happens if a business partnership fails? ›

If you cannot come to terms, or if you do and the partner does not keep his agreement, you must be prepared for a change in business status. You may decide to close the doors, sell the business, sell your share to the partner, buy him out or any other option that will allow you to move forward with YOUR plan.

How do you solve business partnership problems? ›

Here are four tactics that will help you handle conflicts with your business partner:
  1. Plan Ahead When Possible, and Stop Fights Before They Start. ...
  2. Plan Ahead When Possible, and Stop Fights Before They Start. ...
  3. Don't Rush to Judgment. ...
  4. Don't Rush to Judgment. ...
  5. Have an “Active Listening” Session. ...
  6. Have an “Active Listening” Session.

What are the 5 top reasons why business fail? ›

Five Common Causes of Business Failure
  • Poor cash flow management. ...
  • Losing control of the finances. ...
  • Bad planning and a lack of strategy. ...
  • Weak leadership. ...
  • Overdependence on a few big customers.

Why do strategic partnerships fail? ›

Without a leader and dedicated resources, the result is a lack of a strategic plan. A failure to think through the objectives, align on win-win outcomes, agree on resourcing and responsibilities across the parties, and decide on key milestones and checkpoints can lead to a relationship that languishes over time.

What are the 10 reasons why new business fail? ›

Let's explore the top 10 reasons why businesses fail – plus one important bonus tip.
  • Complacency. ...
  • Not prioritizing sustainability. ...
  • Not putting customers first. ...
  • Not relentlessly innovating. ...
  • Not thinking of themselves as tech companies. ...
  • Not treating data as a key business asset. ...
  • Failing to attract and keep talent.
29 Aug 2022

What is probably the greatest disadvantage of a partnership? ›

There are disadvantages to general partnerships, principally liability. General partners are personally liable for the business debts and liabilities. Each partner is also liable for the debts incurred by the actions of other partners.

What is one of the biggest barriers to effective partnership? ›

There are inherent barriers to partnership working that need to be overcome for them to have a chance of delivering success: cultural and behavioural differences between partners; differences in expectations and information systems; and, the incompatibility of structures and processes.

What are 3 weaknesses in business? ›

Common business weaknesses
  • Weak, fragmented company culture.
  • Lack of product differentiation.
  • Low efficiency and high waste.
  • Poor customer service.
  • Unregulated and unplanned growth.
  • Slower to market than competitors.
  • Rigid structure that reduces agility.
  • No diversification.

Why do business alliances fail? ›

Reasons for alliance failure

Earlier research indicates that alliances fail for a variety of reasons: Differences in culture. Incompatible objectives. Lack of executive commitment.

What is the biggest reason of failure? ›

1. Inadequate training. Enabling employees to complete tasks properly, and with minimal mistakes, requires time and effort. When people do not understand what they are doing or how to do it optimally, there is a higher chance of making mistakes or failing to complete tasks altogether.

Who is responsible if a general partnership fails? ›

The general partner is responsible for the debts if a general partnership fails. What is a general partnership? A general partnership is a business entity made of two or more partners. A general partnership agreement is not needed to form a general partnership, but it's a good idea.

What is considered a failed business? ›

Business failure refers to a company ceasing operations following its inability to make a profit or to bring in enough revenue to cover its expenses. A profitable business can fail if it does not generate adequate cash flow to meet expenses.

How can we improve our partnership? ›

6 proven steps for building lasting partnerships
  1. Be honest and transparent. ...
  2. Communicate clearly and regularly. ...
  3. Compromise sometimes. ...
  4. Actively seek opportunities to collaborate. ...
  5. Bring a cheerful attitude to the (partnership) table. ...
  6. Put effort into building relationships.
21 Jun 2022

What are the 7 factors that affect the business to fail? ›

7 Causes of Business Failure
  • Inexperienced Management Team: One of the major reasons that a business might fail is its management. ...
  • Underestimating The Importance Of Cash Flow: ...
  • Differentiate or Prepare to Die: ...
  • Lack of Focus: ...
  • Not Knowing about your Competitors: ...
  • Declining Market: ...
  • Not Seeking a Professional Advice:

What are the three main reasons team fail? ›

Top 5 Reasons Why Teams Fail And How To Prevent It?
  • Poor Communication.
  • Lack of Vision.
  • Lack of Decision Making.
  • Lack of Interest.
  • Lack of Empowerment.

Why do partnerships lack stability? ›

Lack of Stability

If one partner chooses to retire, quit, or resign, then the business automatically dissolves. This can also happen if one partner dies suddenly or has to file for bankruptcy. For the remaining partner, this means a fast end to a profitable business that he or she has spent time and energy building.

Why do some businesses fail and others succeed? ›

Poor resource management, an inadequate business plan (or the lack thereof), failure to track finances and ineffective marketing are probably the most common reasons that lead small businesses to failure.

What is one of the biggest disadvantages of partnerships quizlet? ›

The disadvantages of a partnership are unlimited personel financial liability, uncertain life, and potential conflicts between the partners.

What are the 3 C's to develop successful partnership? ›

A successful partnership requires three key elements: comprehension, collaboration, and communication.

What are five issues that may be barriers to successful collaboration? ›

Common Barriers to Collaboration
  • A lack of respect and trust.
  • Different mindsets.
  • Poor listening skills.
  • Knowledge deficits.
  • A lack of alignment around goals.
  • Internal competitiveness.
  • Information hoarding.
  • Organizational silos.
9 Oct 2017

What are the 5 common barriers? ›

Definition of Barriers

There are five key barriers that can occur within a company: language, cultural diversity, gender differences, status differences and physical separation.

How do you answer the top 3 weaknesses? ›

How to answer What are your greatest weaknesses? Choose a weakness that will not prevent you from succeeding in the role. Be honest and choose a real weakness. Provide an example of how you've worked to improve upon your weakness or learn a new skill to combat the issue.

What are your 5 key weaknesses? ›

Sample responses to “What are your weaknesses?”
  • Self-criticism. I can be quite critical of myself, which can lead to negative self-talk and eventual burnout. ...
  • Fear of public speaking. I am a naturally shy person. ...
  • Procrastination. ...
  • Issues with delegating tasks. ...
  • Lack of experience with skill or software.
16 Aug 2022

What are the 3 reasons that causes dissolution into a partnership? ›

There are three causes of dissolution: (1) by act of the partners—some dissociations do trigger dissolution; (2) by operation of law; or (3) by court order.

What causes a partnership to end? ›

So, a partnership may now only terminate by cessation of partnership activities and liquidation, or when the partnership's business activities no longer continue in partnership form.

What are the 4 causes of dissolution? ›

Causes of Dissolution of Partnership Firms
  • Dissolution by Agreement. ...
  • Dissolution by Notice. ...
  • Insolvency of Partners. ...
  • Commitment to Illegal Business. ...
  • Death of a Partner. ...
  • Expiry of Term. ...
  • Completion of Work or Contract. ...
  • Resignation of Partner.

What do you think is the most common cause of dissolution and why? ›

One of the most common reasons to close your business is because of low cash flow. Accumulating more and more debt is not the way to get through the tough times! If you end up producing defective products or even are facing bankruptcy, you are going to need a business dissolution to protect yourself.

What happens when a business partnership ends? ›

When a partnership dissolves, the individuals involved are no longer partners in a legal sense, but the partnership continues until the business's debts are settled, the legal existence of the business is terminated and the remaining assets of the company have been distributed.

How do you break a business partnership? ›

Be sure you know what you want from the break before approaching your business partner and negotiating an agreement.
  1. Make the Break Quick and Decisively. ...
  2. Discuss Future Plans. ...
  3. Discuss Your Plans with an Attorney. ...
  4. Say Thanks and Be Reasonable. ...
  5. Protect Your Assets. ...
  6. Return Company Assets. ...
  7. Call in the Experts.
23 Mar 2021

When should you end a business partnership? ›

While this is how a business partnership should work, there are some people who cannot compromise and refuse to consider the ideas of the other partner(s). If you can't get your partner to consider your ideas, even after attempting to compromise, it is probably time to leave the partnership behind.

What is the greatest disadvantage of limited partnership? ›

On the downside, LPs require that the general partner have unlimited liability. They are responsible for 100% of management control but also are on the hook for any debts or mishandling of business dealings. As well, limited partners are only allowed limited involvement in operations.

What are the three main reasons for the failure of companies? ›

Five Common Causes of Business Failure
  • Poor cash flow management. ...
  • Losing control of the finances. ...
  • Bad planning and a lack of strategy. ...
  • Weak leadership. ...
  • Overdependence on a few big customers.

Videos

1. Why Most Business Partnerships Fail In Pakistan | Azad Chaiwala
(Azad Chaiwala 2.0)
2. Why Most Business Partnerships Fail In Pakistan | Urdu Hindi Punjabi
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3. Why business partnerships fail and how to save yours
(Biolaflow)
4. Why Most Business Partnerships Fail - Freedom Strategies Ep.7
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5. 5 Signs You Have the Wrong Business Partner
(The Entrepreneur's Advocate)
6. Why Most Partnerships Fail [Episode 304]
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