Checklist: How to Deal with a Departing Business Partner

Way back in 2014, I wrote a blog article entitled Leaving a Partnership — How To Do It Right. Since that time, this firm has seen a lot of bad breakups — so many in fact, that partner disputes (whether an actual partnership, or a parter in a LLC or Corporation) are one of the primary sources of revenue to this firm.

What many people fail to understand, when agreeing to become a business partner with one or more people, is that going into business with someone else is akin to entering into a marriage: They involve lots of money, most of your time, and are very difficult to get out of unscathed of things don’t work out.

There are three general phases when we discuss a departing business partner: The initial phase where things start to go south between the business partners. We wrote about this first phase, in an article called When Business Partners Declare War. The second phase involves actually splitting up, and how to accomplish it. We wrote about this second phase, too, in the article referenced above. This particular article you’re currently reading addresses the third phase, and that’s picking up the pieces after a business partner has departed.

The Departing Business Partner

Every business is unique, and the role(s) each partner fulfills can be quite varied. The checklist you need, can depend on the type of role (or contributions) the departing business partner fulfilled:

• The Rainmaker. This is the partner who was responsible, one way or the other, for significant portions of the company’s revenue.
• The Administrator. This is the partner who made sure the bills got paid, and handled the rather mundane back-office functions of the company.
• The Coach / Mentor. This is the partner who maintained high morale or otherwise provided mentorship to the rest of the employees.
• The Genius. This is the partner who provided the critical skills, that made the company’s products or services so great.

Does the departing business partner fulfill one or more of the roles mentioned above?

The Rainmaker

When the departing business partner was a rainmaker for the company, it will be critical for the company to shore up its business development activities, as well as make a special effort to reach out to existing clients/customers, partners and centers of influence. Hopefully, the departing business partner has signed a separation agreement containing a strong non-competition and non-solicitation clause, so that you do not have to worry about the former rainmaker stealing important clients or people from your company. If this is not the case, and you run such a risk, then it’s critical to make this a priority — you should assume the departing business partner / rainmaker will make it a priority for him or herself.

A recommended checklist includes:

1. Obtain a satisfactory replacement. This may involve promoting from within or hiring from outside. Don’t be afraid to pay this individual what they are worth to the company.
2. Disable access and/or change passwords to all key systems, including CRM, bank accounts, email, social media and advertising accounts.
3. Redirect personal email to another partner or the replacement. Make sure to double-check email forwards, such as “info@” or “sales@”.
4. Contact all important clients, especially those who you think had a close relationship with the departing business partner. Don’t be afraid to talk about the departing business partner, and to seek reassurances they won’t leave without at least checking in first.
5. Contact all important partners / centers of influence. Does your company receive valuable leads from another company or individual? If so, make sure you reach out to them in a similar fashion as your important clients.
6. Document everything, especially information you receive from others, indicating what the departing business partner may have done or said, relating to the company, or stealing important clients or people from your company.
7. If relevant, make sure the Rainmaker understands and acknowledges the company’s customer list is trade secret information. Take measures to keep this information confidential and secure. Consult with a business lawyer or intellectual property attorney who is familiar with trade secret laws in your state.
8. Full-steam ahead for typical business development activities. No matter what you do, make sure your business development activities don’t miss a beat. Every day you procrastinate or fail to make a decision, will create long-term cash flow issues.

You run the risk of short-term revenue loss associated with departing customers, clients and/or employees, as well as long-term cash flow shortages associated with reduced income generation. Do everything you can to minimize these issues.

The Administrator

The Administrator is oftentimes the least understood — and least valued — member of a partnership, but their activities are no less critical than any other member. Fortunately, depending on the type of business, you may be able to hire a temporary bookkeeper or office administrator to keep things going. What’s important here, is to make sure you continue to handle accounts payable (A/P), accounts receivable (A/R), and whatever processes going that are strategic or legally required.

A recommended checklist includes:

1. Find a replacement, or consider hiring a temporary bookkeeper or office manager, depending on the specific role of the departing business partner.
2. Disable access to all key systems, including bank accounts, merchant accounts, payroll system, company systems, CRM and email.
3. Redirect personal email to another partner or the replacement. Double check email forwards, such as “admin@” or “accounting@”.
4. Contact all relevant vendors, and provide a new point-of-contact.

The Coach / Mentor

When the departing business partner is key to the positive morale of the company, it’s critical to address employee morale. In general, it’s important to (1) prevent key employees from jumping ship to wherever the departing business partner has gone, and (2) prevent a drop in morale and see your key employees dusting off resumes and going to competitors.

Hopefully (similarly to the Rainmaker), the departing business partner has signed a separation agreement containing a strong non-competition and non-solicitation clause, so that you do not have to worry about the former rainmaker stealing important clients or people from your company. If this is not the case, and you run such a risk, then it’s critical to make this a priority — you should assume the departing business partner / coach / mentor will make it a priority for him or herself.

A recommended checklist includes:

1. Call a company meeting, and make sure employees understand their jobs are secure.
2. Conduct private meetings with key employees, and make sure you understand what concerns they may have. Make sure they understand you understand their importance and value.
3. Disable access and/or change passwords to all key systems, including such as CRM, bank accounts, email, and company systems.
4. Redirect personal email to another partner or the replacement.

The Genius

Last but not least is a departing business partner who was the Genius of the company. When a company loses such an individual, you run the risk of declining quality, and the loss of key employees and key customers/clients. Furthermore, the Genius is as critical as the Rainmaker, when it comes to dealing with a new competitor. Similarly, you should have a separation agreement with non-competition and non-solicitation clauses, and if not, you really need to make it a priority to deal with the departure.

A recommended checklist includes:

1. Find a replacement, or make sure key employees who can provide the quality of products or services remains.
2. Conduct private meetings with key employees, and make sure you understand what concerns they may have. Make sure they understand you understand their importance and value.
3. Contact all important clients, especially those who you think had a close relationship with the departing business partner. Don’t be afraid to talk about the departing business partner, and to seek reassurances they won’t leave without at least checking in first and make sure they understand the measures taken to maintain quality control.
4. Verify important steps, processes, methods, recipes, or whatever important to your business, are well documented and communicated within your business. If you don’t have this, it may be beneficial to pay your departing business partner some sort of consulting fee to finish these documents. Also, if relevant or important, make sure such “instructions” are confidential and trade secret. Consult with an Intellectual Property attorney to better understand your options.
5. Disable access to all key systems, including bank accounts, merchant accounts, payroll system, company systems, CRM and email.
6. Redirect personal email to another partner or the replacement. Double check email forwards, such as “admin@” or “accounting@”.

Mix and match the above-suggestions as appropriate for your departing business partner.

Other Considerations

Aside from the above-suggestions, consider the following checklist for your departing business partner:

• Remove from all important computer and other accounts, especially bank accounts
• Disable outstanding debit and credit cards in the departing business partner’s name
• Remove from all vendor accounts and company accounts
• Look up the company at the relevant Secretary of State, and remove departing business partner as appropriate
• Redirect email
• If the departing business partner is listed as the “Responsible Party” for the company’s FEIN, submit IRS Form 8822-B to the IRS (instructions are included with the form)
• Depending on the state or states where you are transacting business, you may need to make changes at such states’ taxing authorities (check with a competent business lawyer in your jurisdiction)
• Honor and perform any and all requirements in any separation agreement
• Revise and update the company formation documents (i.e. Bylaws, Operating Agreement, etc)
• Remove departing business partner from any equipment / vehicle titles, trusts, real estate and other assets that may have individuals listed or associated with them
• Cancel any key man or key life insurance policies on the departing business partner
• Change beneficiary information for any insurance policies where departing business partner may be a beneficiary
• If your practice has special licensing requirements, create an appropriate action-plan and execute. For example, if the departing business partner is a qualifying broker, is there another partner that can act as a qualifying broker? Same issues exist for contractors, medical professionals and more. Seek advice from a competent business attorney to help advise you.

A departing business partner represents a blow to the business, as well as the people within the company. But, with quick thinking and follow-up, you can minimize the impacts associated with such a departure.

Law 4 Small Business, P.C. (L4SB). A little law now can save a lot later. A Slingshot Company.