Building Your Business Becoming an Owner Why Most Business Partnerships Fail How Yours Can Succeed By Susan Ward Susan Ward Twitter Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses. learn about our editorial policies Updated on September 15, 2022 Fact checked by Sarah Fisher Fact checked by Sarah Fisher Sarah Fisher is an associate editor at The Balance with two years of personal finance and business writing experience. She has written about personal finance for SmartAsset, and has held internships at the Consumer Financial Protection Bureau and Senator Kirsten Gillibrand's office. learn about our editorial policies Share Tweet Pin Email In This Article View All In This Article Mixing Personal Relationships With Business Unequal Commitment Among Partners Lack of Success Differing Values Personality Clashes Failure of Trust Bottom Line Frequently Asked Questions Photo: Thomas Barwick / Getty Images 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 placeClear communication is key in a business partnershipYou 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 needs to 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. Done properly, a business partnership with family or friends can be rewarding and profitable, but unsuccessful partnerships can break up families or destroy friendships 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 fully articulated in the partnership agreement. Otherwise, it's likely to lead to strife among partners. 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 revenue can 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 preparation or a business idea that is not viable. Thorough business planning before and after startup, including research on the target market, realistic cash flow, and revenue projections, and having sufficient debt or equity financing available when needed are 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. Potential partners may disagree on their visions for the company and have radically different notions of the long-term goals 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 having a large staff, opening satellite offices, and taking the company public. To avoid long-term conflict between partners, the company vision should be agreed upon and described in advance in a vision statement and sections of the business 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 be headed for trouble. Disagreements among partners are to be expected, but heavily contrasting personalities can amplify differences of opinion and lead to resentment and conflict. When evaluating a potential 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 problem employees, 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 personality can also be a benefit rather than a hindrance, providing you respect your partners, value their opinions, and have a shared vision for the business. 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 other businesses in the past and if so, how were they regarded by past partners, suppliers, customers, and employeesTheir reputation in the communityAny previous legal difficultiesTheir employment historyIf they have ever been bankrupt, had a poor credit rating or been in difficulty with the tax authoritiesIf 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. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Exit Consulting Group. "Why Business Partnerships Fail and How to Avoid Bad Partnerships." NAVIX. "10 Reasons Business Partnerships Fail." Sharlin Law. "How Are Business Partners Held Liable?"