My liberal arts degree did not prepare me for this.
November 2, 2010 2:37 PM   Subscribe

I run a very small professional services firm. The firm has had a great first couple years and has built up a solid client base and some decent cash reserves. I have long been considering bringing on my first partner to expand the kinds of services we can offer to our clients. Now that I have found the ideal candidate, I find myself struggling with the details around how to structure the partnership. Any recommended books or other resources to help guide a very small growing firm?

The firm can not afford another principal salary, so the new partner would essentially need to earn their own keep and recruit new clients. I also don’t want to tap in to my reserves in case I need to cover my pay during any future dry spells. I can provide office space and some of my assistant's time to help the new person get up and going.

What I don’t understand are the different ways to structure a parternship and the relative pros and cons of each. Obviously I don’t want to put in jeopardy what I have worked so hard to build, but I also don’t want to alienate my new partner by being too stingy.

Any advice? Any resources that might help me? I’ve read this book, but it seems to be geared towards a much larger firm than my little 2 - 3 person operation.
posted by jlowen to Work & Money (6 answers total)
I do not understand the legal structure of a partnership so well. But you would want to hire the "partner" as a contractor first so see how things go.
posted by yoyo_nyc at 2:39 PM on November 2, 2010

Response by poster: @yoyo_nyc: I neglected to say that the individual has been working with me as an independent contractor for the last few months.

@seesom: I have read that book at it seems to be geared towards a much larger firm. It seems advice more appropriate to bringing on my 8th partner than my first.

Thanks to you both.
posted by jlowen at 3:02 PM on November 2, 2010

I'd love to discuss this, but your info isn't detailed enough. How is your firm leveraged (senior - junior ratio)? What kind of cash reserve do you call "decent"? What line of business? What are your hourly rates? What are your billing targets and do you make them easily? How's your growth and marketing going?

Etcetera. Feel free to MeMail me if you don't want to share this in the open.
posted by NekulturnY at 3:12 PM on November 2, 2010

If there is there a chapter of SCORE near you, your questions are right up their alley.
posted by headnsouth at 3:30 PM on November 2, 2010

The biggest consideration is what the custom and practice in your field is.

In most professions, having the new guy serve as an employee for a period of time is normal. This gets him acclimated to the business, to the clientele, and to their needs. This also earns some surplus for you as the owner, so that he can then be made an equity partner without financial disruption.

The balance always has to be carefully struck to keep him there and keep him happy. If he is not, the risk is always present that he could walk out, set up shop, and start working in competition. In some fields, a non-compete agreement is also customary.

The well-run practices don't need to worry too much about this risk, since they are run in a fashion that encourages the newer people to stay rather than flee. Run yours in that way.
posted by megatherium at 4:01 PM on November 2, 2010

Norm Brodsky's The Knack is a particularly great book about dealing with all sorts of issues, and covers a top-to-bottom approach of managing growth and planning ahead. I think they mention some partner stuff briefly in there as well, but it's a fantastic read in any event.
posted by disillusioned at 5:03 PM on November 2, 2010

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