3 Steps to Resolve Small Business Partnership Disputes Over Finances

The U.S. Small Business Administration ranks disagreements among partners as one of the top reasons why general and limited liability partnerships fail. In the case of financial reporting, these small business partnership disputes often center on compensation, access to records, accounting irregularities, breach of fiduciary duties and misrepresentations. They may even involve allegations of fraud. If you are involved in a financial dispute with your partner, follow these steps for the best resolution.

1. Discuss the Problem Face to Face

Partnership disputes typically stem from either a lack of trust and respect or a perceived difference in contributions versus rewards. When you are involved in a disagreement, avoid the urge to send terse emails, storm into offices or use family members against one another. Instead, take this advice from CPAs, lawyers and mediators who have handled these situations before:

• Set aside a face-to-face meeting time with minimal distractions. Talking during the workday may be unproductive in this case. Try a conversation after work or over dinner.
• Define what you want to accomplish. Focus on a specific issue instead of everything that is going wrong. For instance, work on fixing a profit-sharing arrangement before tackling any broken relationships.
• Look at the partnership agreement, federal regulations and state laws for guidance. Determine each partner’s rights and responsibilities.
• Communicate in a businesslike manner. Do not let your emotions get in the way, do not make personal attacks and do not take the conversation personally. For example, if you are not receiving essential financial reports, explain why you need access to confirm your equity and the rightful distribution of profits.
• Act with integrity and fairness in the spirit of a win-win outcome. Focus on finding a solution instead of winning an argument. If you deceptively take what you want now, you may just lose more in front of a judge later.

2. Trust a Neutral Third Party

If you cannot resolve your differences on your own, then enlist the help of a neutral third party. For minor conflicts, another business partner or mutual friend may offer assistance. Lean on professional advisors who have seen these types of partnership disputes before. For more important matters, go to a mediator. A trained mediator will take a neutral position, remove heated emotions and suggest mutually beneficial strategies for moving forward.

3. Hire an Attorney

If you still cannot come to an agreement, consult a legal professional. An attorney can guide you through alternate options to avoid a costly litigation. You can learn about your rights and obligations with regard to staying in the partnership or getting out of it. For example, you may not be able to terminate a dishonest partner without following certain procedures and conducting a buyout. By getting legal help, you can also fix the operating agreement so that similar situations do not occur in the future.
In the end, take these steps to discourage animosity and drive a productive outcome. Even if the relationship cannot be saved, you have the tools you need to resolve financial disputes with your business partner.

At Verdeja, De Armas & Trujillo, LLC, our team of Miami business advisors is dedicated to providing you with independent and unbiased valuations for businesses and business interests of all sizes. Contact us today for a small business valuation consultation.