Personality complex or strategy aren't the reasons most partnership businesses collapse; the majority of the time, the businesses will collapse because the partners didn't state clearly their financial stands and fundamentals for the business. Simple questions like the amount to pay themselves, how fast they want the business to grow, how much of the business profit is reinvested into the business, and when they come to both agree they are successful or have had a successful run?
It's not like most people do not have this at the back of their mind when going into a business, but because they want to avoid feeling uncomfortable, they never discuss it from the get-go; as the business grows, these issues become unavoidable. Certainly, when you are starting a partnership agreement, fundamentals such as equity splitting come first. Who owns what percentage, and who keeps what percentage? Other fundamental talks will be distribution, decision-making authority in the business, and so on, but then, distributions always happen to be the predominant problem in partnerships that were not properly discussed and stated clearly.
AT the beginning of the business, the money is often not coming in, or when it is, the numbers are pretty small, and what's left for the business owners is pretty small and at this point, not really something to worry oneself about, but as the business grows, it becomes a problem. When one partner wants to keep the money in the business, the other might not be very conservative. If your partner needs cash for their personal life, you might begin to have issues with your partner, but since neither of you mentioned this at the beginning of the business, it might become a serious issue.
Questions like when do we share profits, what percentage goes back into the business for growth, and how much do we split the profit based on share ownership. If you do not intend to take profit, and your partner does, they will be draining their equity by taking distributions, but it will still affect the business because the basis will still be different. To avoid things like this, you need to state clearly from the get-go what type of distribution policy you are going to adopt. Will distributions be taken quarterly, semiannually, or annually?
Another thing that breaks a partnership is how you want to grow, and at what rate. Do you want to grow very fast, or do you want to remain at the point for a while? While a partner might want to grow sustainably, the other might want to see very fast speed and increased growth within a short period of time. If your partner is cool with taking on lots of debt and giving up more equity for growth, while you are not, there is no way both of you will not have trouble along the way. You both need to understand that business growth requires more capital, and one fear is growing into significant debt or bankruptcy. In the process of avoiding things like this, both of you would have trouble finding a proper ground because you both share different ideologies.
When you have excess cash as a business, you are left with decisions to either reinvest or share it. These are decisions you should have made at the beginning of the business. Also, when you start the business, it is important to know the value of the business because as you grow bigger, the partnership of the business would depend on this as well. You need to be able to say if you want to value your business through the income approach, market approach, both, or asset-based approach. If both partners do not decide this, they might value the business in different ways, giving different valuations to the company. So when one thinks the business is now very valuable, the other might see it as a business that is not valuable enough.
Partnership is rewarding, but it requires honest communication. Discuss financial fundamentals, growth expectations, and business valuation before you launch. Like any strong relationship, a healthy partnership is built on clarity and shared understanding from the beginning.