Forming a Partnership

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Dealers must ask critical questions before moving forward

Key Points
Who has his name on the OEM agreement?
Who's the dealer principal, GM, sales manager or silent partner?
How should you dissolve a partnership

EDITOR's NOTE: Last month's column related three stories about dealership partnernships. This month we provide advice on forming your own partnership.

You can't pick your parents, but you can pick your partners. If you plan to have a partner or partners, pick them wisely, because if they're the wrong match it can be expensive, painful and a major time-killer.

A business partner, whether they're related to you or not, is about as intimate with you as your spouse. There is almost nothing about you that your partner won't know — from your net worth, financial connections, debts and assets, to your lifestyle, family matters, health, and personal strengths and weaknesses.

Because of this, the most important factor in your relationship must be trust. Without it, the relationship will crumble under the weight of the everyday stresses that come with building a business. With unfailing trust the synergy of the partnership can form the bedrock of the business that will ultimately reduce those stresses and produce success.

You must begin with the end in mind when you approach the decision to partner. Having a business partner is usually a financial choice, even if it's a family member. However, it had better be a strategic choice as well. And as with so many other choices in this business, you must ask yourself, "What is my vision for the future, and what is my partner's?" Do you plan to stay active for five years, 10 years or more? What about your partner?

Here are some key questions that you and your partner (or partners) need to resolve right from the start:

  • Which one of you is going to have his or her name on the dealer agreement with the manufacturer?
  • Who's the dealer principal, general manager, sales manager or silent partner? That first corporate or partnership document you all sign must spell out who gets what, who has which role, and what the titles are. Titles may not matter now, but they will down the road.
  • How do we dissolve the relationship if that should come to pass? It will happen, you know. One partner's son wants to come into the business; the other partner has no children. How will you make that decision when the time comes? What if one partner wants to bail out for health reasons or retirement, leaving the others with the business? And in the worst-case scenario, to whom will you leave your business when you die? To your partner, or family?

Should all partners make all these decisions with equal weight? More often than not, I've seen this scenario end in disaster. Someone must take charge.

Get Counsel

Then there are the tax implications. The advise of qualified financial and legal counsel and sound business advice are imperative.

I am not an attorney or a CPA, but over the years I have witnessed several dealers sell their profitable businesses strictly due to the manner in which they chose their partners and how they established their rules of engagement.

Frankly, worse than their making poor decisions was their absence of decisions. They failed to ask those critical questions we mentioned earlier at the start of the relationship. So years later, after tons of water had flowed under the bridge, they were frozen in their ability to make clear, objective decisions about the business and its future.

The result was, in the worst cases, failure of the business. At best, they had to sell, and usually not at the highest and best price and terms.

There is no one right formula for picking a partner. But the process of starting a business with a partner requires the same dedication and focus as drafting your last will and testament. Of course, if you miss something in your will, you won't be around to deal with the consequences. You will be around, however, to deal with a miscue in the partnership elements of your corporation — although you may end up wishing you weren't.

Next month, some real-life examples: a failed dealer partnership and a few that succeeded.

Clark Vitulli founded America's PowerSports for which he served as chairman, president and CEO from 1998 to 2006. Send questions and comments to editors@dealernews.com.