Entering into a partnership is a complex commercial and personal transaction. It should be approached with the same care and diligence most businesses would use for a commercial transaction.
Steps to success
When considering a move to partnership, either within an organisation or joining another partnership, it is important to be well informed. Don’t forget the personal side when making a decision, and approach the process with emotional intelligence: do the people and culture feel like the right fit? The following steps will guide your decision.
1. Research
Prepare a list of potential firms and rank them according to the key aspects that are critical to your career progression. This should help narrow the number of potential firms to a small, manageable group.
2. Initial contact
Once you have the shortlist, prepare a plan to make contact with the firms. Consider carefully which person to contact, whether this is a personal contact or a senior person within the organisation – a senior or managing partner. Usually, this will lead to a number of initial meetings with each practice to flesh out some general concepts and understand what prospects exist within the organisation.
3. Negotiation
Following this initial phase, narrow the number of potential firms to one or two. Focus here on the personality and cultural fit rather than commercial aspects. Ultimately, what is key is that the people and culture feel right for you. Once this list has been prepared, start negotiations with the practice by setting out your key criteria for a deal. Keep this part of the discussions formal – casual is fine at the research phase, but during the negotiation period it’s important to ensure that all parties are on the same page to avoid any confusion later on.
4. Due diligence
In order to avoid disappointment or even conflict within the partnership, make sure you know what you are getting into before you agree. If necessary, seek advice from an independent due diligence expert who can help guide you in this kind of career move.
Just as in any due diligence, the process should include a review of the different areas of the practice: general background, profitability and distribution policies in relation to the profit generated, analysis of the profit and loss account, forecast analysis, balance sheet review and liabilities.
The review will be key to understanding the ownership structure of the practice as this is fundamental to its operation. You must understand this in intimate detail before accepting any role as a partner. While the capital structure is obviously very important, the working capital requirements often go hand in hand with that capital structure. Check the working capital requirements – in particular, any loan account commitments that you will be required to contribute to the practice.
5. Legal/contractual obligation
After the due diligence process is completed, the formal legal part of the transaction needs to be taken care of. Most practices have established documentation in place to deal with incoming and exiting partners. It is important to obtain independent legal advice regarding the contractual obligations you will enter into. This will ensure you are raising the right questions and also prepare you for future discussions you may have with your fellow partners regarding the contractual obligations of becoming a partner of that practice.
6. Execution and integration
Once you have agreed on the legal documentation and undertaken your due diligence, the execution phase should be planned in the same manner. If moving to a new practice, the sooner the non-legal or financial aspects can merge, the quicker the partnership can begin to operate.
It is important to consider what the short-term integration plan will be after moving to the partnership. Prepare a contact plan that includes meeting key clients and referrers celebrating your move to partnership. It isn’t just a business transaction, it’s also a major personal achievement in one’s career.
