Fitness Industry Solutions

November 1, 2006
Author: Tom Perkins - Business Development Coach and Certified Personal Trainer

Forming a partnership in business definitely has its pros and its cons. One way to ensure that you and your partner(s) experience more of the pros than the cons is to make sure you set up your partnership the right way from the get-go. Even if you are starting a business with one of your oldest and dearest friends that you would entrust with your life, you should still put your agreement down in writing.

Often, partners get caught up in, and singularly focused on, the actual process of starting their business. They take the time to prepare a detailed business plan to attract financing, labor over selecting the perfect location and purchasing the right equipment, and are pushing enthusiastically full steam ahead. Unfortunately, they’ve forgotten two important steps which should have been completed before the wheel were set in motion. Those missed steps include drafting a partnership/operating agreement and the buy and sell agreement.

A partnership or operating agreement spells out such things as who will make decisions, what type of decisions will require a vote, how money would be distributed and any other operational issues. A buy and sell agreement specifically addresses how certain events that could impact the future of the business, i.e. the death, disability, bankruptcy, divorce or the desire of a partner to sell their share, would be handled. In short, both documents clearly define not only the role of each partner, but what they bring into the partnership, how that’s valued, and what will occur if the partnership is dissolved.

Determine input and percentage of ownership. It’s not unusual to have a partnership that is unequal in terms of what is invested and how it is valued. One individual may bring cash to the table, while the other brings experience and knowledge. How do you place a value on experience and knowledge as it relates to actual cash? Chances are you couldn’t effectively operate without the cooperation of both so you have to agree on how those elements will be valued and to what percentage of ownership that entitles each partner.

Consider a life insurance policy. Each partner may want to consider taking out a life insurance policy naming the other partner as beneficiary, particularly if there are debts. Why? A life insurance policy would ensure that in the event of the partner’s death that the business would be protected and carrying on. Furthermore, the surviving partner would have additional expenses from hiring someone to take over the responsibilities the other shouldered while alive.

Remain open to change. No matter how hard you may try to plan for every conceivable contingency and incorporate it into the agreement, chances are something’s going to get missed or come up that just wasn’t covered in the initial agreement. Therefore, it’s important to incorporate language into the agreement that allows parties to modify the agreement in the future.

Partnership/operating agreements and buy and sell agreements provide a solid foundation for a new business endeavor. Their importance should not be overlooked or underestimated. More importantly, they can provide you with peace of mind. Ancient Greek playwright Aeschylus summed that sentiment up best when he said, “when a match has equal partners then I fear not.”

With a degree in Accounting, certified as a personal trainer, and primary function as a business development coach; Tom Perkins works with personal training departments, fitness professionals, management of health clubs, as well as fitness product and sports nutrition companies in the areas of sales, marketing, and promotion; operations and administration, and staffing and human resource management. With 6 startups in 17 years under his belt and over 20 years of working with the fitness industry Tom leads companies to profitability through Fitness Industry Solutions www.fitnessindustrysolutions.com.