Ep 82 - Coaching Call #15 | Why Partnership Agreements Are a MUST!

0:00You know, sometimes just bringing money is enough, right? And get out of the way and let the other person go about it. But that needs to be defined because what happens if the handshake agreement was, I'm just going to bring you money and you're going to go build a business. And then 6 months in, the money person is like, I want to start exerting some control over how you do things.

0:17The following program features a bunch of doofuses talking about the automotive aftermarket. The stuff we or our guests may say do not necessarily reflect the beliefs of our peers, our sponsors, or any other associations we may have. There may be some spicy language in this show, so if you get your feelings hurt easily, you should probably just move along. So without further ado, here's your host, Mike Allen, with Confessions of a Shop Owner, presented by TechMetric, the best software ever invented for any purpose ever.

0:55Ah, good morning from sunny Myrtle Beach, South Carolina, where it is brisk, but at least it's not raining anymore. How are you doing? I'm doing fantastic, Mike. I'm just glad to see you. Can you see what's in the background, by the way? I see your bronze trophy from, uh, from the go-karting. I'm super proud of you. Wait, no, you just zoomed in.

1:18There it is. Oh, you've learned out how to use the hand signals for the— nice. Oh yeah, fancy. Um, well, you know, if you put the right filters on your camera, you might be able to make it look gold. I'll send you a picture of mine and you can sample to get the filter right. I almost typed my name in today for our meeting as, as Señor Trace.

1:38I'll tell you, um, I entered an adult go-kart league competition, uh, at my local track, and, um, the first several weeks of competition was for points. And then, um, they've got different groups that are all running. And then, uh, this week was you line up on the grid, uh, according to points. Uh, it was a rolling start for the first time because it had been a standing start for every other week.

2:12And the top 3 finishers in each group moved on to the final next week. And so I was tied for first place in points in my group. And, uh, the other guy had the tiebreaker, so I started second in a rolling start. And rolling start's way different than a starting, uh, standing start. And it is— I 100% did not know what I was in for.

2:33And it was a bunch of good old boys, and they just ran me right the F over. Uh, and I did not— I did not qualify for the final. I, I struggled to finish in 6th. It was pretty ugly. Um, and humbling. There's different types of racing, and we've established that that is not one of the types that I, uh, have enough practice at yet.

2:53So yeah, uh, you'll get there anyway. Yeah, well, you know, as long as I'm willing to dump enough stupid money into it on toy karts that are governed heavily. Um, anyway, well, you know, a $100 bill goes a long way to take that governor off. Yeah, suddenly I've got 50% more horsepower than everybody else on the track. Yeah, you tip my high school kid $100.

3:16And all of a sudden, all of a sudden you're a second faster than everybody. All right, so, um, today, uh, obviously I'm, I'm not coming to you from my home office like normal. Uh, family and I are out celebrating spring break, so I've got, uh, just the AirPods and the laptop. We'll see how that quality goes. We're going to leave it up to Producer Extraordinaire to filter out all the background noise.

3:41Uh, so if you have any bad noise, uh, on this episode, dear listener, send hate mail to, uh, Braxton. That'd be great. ConfessionsOfAShopOwner@gmail is his, and, uh, he'll be sure to get all the hate mail. Um, but we— I had some conversations, uh, about partnership and, uh, some of the pitfalls of partnership and that kind of thing while we were at the Elite Conference, um, earlier this year, and those episodes have been released and they've gotten a lot of feedback.

4:10and, um, I felt like it was reasonable to kind of stretch that conversation out a little bit from a coaching perspective, because one of the things that was really important to me when I had a partnership was the advice and, um, and, and help that I got from my coach at Elite, Jim Murphy, at the time. Um, and so I just kind of want to go through that process again with you as if we were starting anew.

4:37I want to talk about the different types of partnership that we see out there. Why a partnership agreement is important and what are the kind of the pieces of a partnership agreement that should be considered, why that's the time to have the conversation, right? But just to recap my take on it, I think like, look, most businesses fail, uh, right? So it's safe to say that most partnerships fail as well.

5:04I'm sure that there are a lot of partnerships out there that have been wonderfully successful. But on the whole, um, partnership is a great way to turn a close working relationship or a friendship into animosity over a long enough period of time, and a lot of stress and, and that kind of thing. So, um, I'm not a huge believer in partnership, but at the same time, I can, I can understand because I've lived it that going out on your own is scary, and having somebody alongside you to do that with, uh, it's like a safety blanket, man.

5:42It's, it's not nearly as scary if you have somebody that you can talk to every night. Um, it's like, it's like a marriage, uh, in a very high degree, right? Um, and, you know, sometimes you have one person has all the skill set and one person has the money, right? And so that makes a partnership. And the dynamics, the power dynamics in that type of partnership, because there are a lot of them out there, can get really tricky as well.

6:11So have you had partnership experience in your life, or has it always been just family business, or what's your experience been? So I had, I had two partnership LLCs that we created for some pretty much, startup concept of sales. Hey there, I'm gonna tell you about something that has completely transformed how I run my shop, TechMetric. As a 20-year shop owner, outdated systems used to slow us down.

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8:47It has been incredibly effective. It has made shops seem like they're everywhere to those people who need repairs right then. And I mean, I'm telling you guys, the return on investment has been huge. So if you want to increase car count, you want to get great people in the door, give us a call or reach out to us and ask us about DirectTrack Marketing.

9:08So we had an engineer that worked with us at the family business, and we created some side, side businesses to create some products. And, you know, the concept was we would get proof of concept on the design and then sell the design to, to a larger company. So we were able to do that successfully to completion with one, with one idea, and then the other one died on the vine.

9:37Um, but you know, my take on partnerships— and then I've seen Dad go through different partnerships for things that he did in the past, mostly just trying to help people out. Um, you know, they would enter. So I've seen good and bad side of it. Um, my, my personal belief, along with my experience in partnerships, is a large reason that a lot of partnerships fail is just like you said, people go into it with either friends or family.

10:03And it's a, it's a trust agreement with a handshake. And there's not a lot of real conversation that happens prior to, um, about all of the things. And like you said, it's, it really is a lot more like a marriage than anything else. And, you know, successful marriages are built off of good communication on the front end and alignment, right? So if you can like somebody, if you meet them and you guys can get along, you know, from a personality standpoint.

10:33But if, if your goals and visions for your life aren't aligned with each other, you know, the likelihood of success for the partnership or the marriage is going to be lower than 50%, right? Um, if I'm a career-driven individual and I got empire building on my mind, and you want to live in a single wide and you're happy living in a single wide, nothing wrong with either one of those paths, but they don't intersect with each other very well.

10:59Correct. And so, you know, same, same concept on the professional partnership. And that's, you know, I think a lot of times, like you said, people have a, they have a common dream, but they have a different idea about it. They're not aligned with how that dream is going to come to fruition. And I think a lot of times the dream is, it looks clear and the same, but if you really sat down and fleshed out the details, they're way apart from what they You know, I have a dream of owning a shop, you have a dream of owning a shop, you're a good service advisor, I'm a good technician, we get together, we start a

11:31shop, right? But then when it gets into the, the actual nitty-gritty of how the shop is going to be run and how everything is supposed to go, there's a, there's a big variance there, and who's going to put in the work and how, what that work is going to look like. And, um, that's, you know, typically where we see friction and, and arguments that pop up.

11:53And then there's— nobody wants to have the difficult conversations on the front end of what happens when we have those arguments, right? I'm here for it, man, because the time to have the hard conversation is when everybody's getting along and when everybody's happy and excited. Because like you said, so often it's, you know, complementary skills, or one has the skill, one has the money, or whatever, and they're fired up and this is going to be awesome, we're going to change our lives, let's go, man.

12:18It's just It's like a high five and a handshake and a beer and let's get to work, right? And this is not just the automotive space. This is all across industries. I think it's probably more prevalent in the trades. But I mean, I know people in lots of different fields that have made the mistake of going into partnerships without a clear understanding of the nature of the partnership and how it's laid out.

12:44Um, and, you know, it's one thing if the business fails to launch or it just kind of dies on the vine like you talked about, but what happens if it turns into a multi-million dollar business and there's no clearly defined partnership agreement? There's no clearly defined structure of, uh, you know, shareholder, uh, equity, you know. I mean, that's— and then, and then when you're talking about millions of dollars then the conversation's way more awkward, right?

13:14Um, so, you know, I think you've got— if you're going into business, if you're a technician or a service advisor— we've got some listeners who are from outside of the sector who are just tired of the white-collar life and, you know, the middle management BS, and they just wanted to go out and buy a trade business. We've got some of those listeners as well.

13:35If you're looking to take on a partner to grow that business, you have to have a business operations agreement, a partnership agreement, a buy-sell agreement, all these things in place. Spend the money with an attorney now. And I know that at startup money is tight and every penny counts. Do not skimp on that. 100%. And, and both sides need an attorney, right?

14:00You can't share an attorney because an attorney has to represent an individual. Right? He can't represent, you know, both parties. And so that's, that's the other thing that I see is usually one party is the one that gets the attorney and sets up the partnership agreement, and not by anything— no malicious intent. Yeah, no malicious intent. But the partnership agreement becomes one-sided, right?

14:24So I was fortunate enough that our, our local family attorney just happened to be in our little small town just happened to be a phenomenal, uh, you know, a phenomenal attorney. And when I went to go meet with him about our partnership, uh, idea, he sat me down and he said— he asked the other individual to leave the room for a second.

14:46He said, Matt, let's have a one-on-one conversation. Let's just see where we're at, and then we'll go from there. And he said, listen, I, I need to know who I'm representing here. Am I representing you, or am I representing him? All right. And he said, if I'm representing— he said, I can't be both. And he said, my recommendation is if I'm representing you, he gets his own representation, right?

15:05Yeah. And so we were able to start that. And so the structure that he laid out for us is what we kind of carried forward, and it worked really well. And the second partnership that we had, um, there were some issues with it that we had to dissolve the business. Like I said, it, it died on the vine, but it died on the vine because things were not done, uh, per the agreement, and we were able to have an easy break from it, like you talked about.

15:30So what he— the structure that he laid out for us is he said, hey, I'm going to represent you, you need to go get your attorney to represent you, we're going to sit in a room together as the group, and we're going to play what if. All right, and we sat down and went through every single scenario of the business being successful, of things stalling out in the business, how distributions are going to happen, what the buyout, you know, what happens if one partner doesn't, you know, doesn't meet the obligation, who owns the assets inside of the business, um, if it is successful, what does the distribution look like, you know, at the time of

16:06exit. All of those things, you know, were planned out, and then he would take that to his attorney and do the same thing And then we, we agreed on who had the final red line of, you know, of the agreement. Yeah. So, and look, if you're listening to this and you're thinking about going into a partnership, uh, and you're concerned about hurting feelings in this my attorney and your attorney back and forth, if you're concerned about hurting feelings at this point, you don't need to be in business together anyway, because this is the easiest that your interpersonal conversations will be.

16:42Is before you're even in business together. So, uh, if you and your partner getting separate attorneys and having back and forth conversations about that, that type of situation is uncomfortable, then maybe you need to be thinking about whether or not you should be in business with this person at all anyway. Um, so just putting that out there. Before we dig too deep in, I do want to talk about the different types of partnerships, at least the different types of, uh, division of ownership.

17:11That I've seen, you know, the most common handshake agreement is, uh, you know, 50/50. Um, and you know what 50/50 means when it's not clearly defined is a nightmare. Um, but it's, you know, we split all the profits. Does that mean that everybody put the exact same amount of money in? Does that mean that everybody puts the exact same amount of time or skill in?

17:34I don't know. Um, especially if you don't have a clearly defined agreement. And then, you know, like you said, who owns the assets of the company if the company goes defunct? Who owns the debts of the company? Do both of you sign on all the notes? You know, that kind of thing. So of the partnership methodologies out there, the one that I think is the most wrought with, you know, possible disaster is 50/50.

18:00So I get that out there. 50/50, I think, is a mistake waiting to happen. Yeah, what I had— go ahead. No, I mean, my thing is, I think you're 100% right. I mean, there's, there's no decision out there that can be a 50/50 decision, because if there's a 50/50 decision and we disagree on it, there's no outcome to the decision. Somebody has to be, you know, somebody has to have 51% to be the decision maker.

18:29Because some decisions need a decision even if there's disagreement in it, right? And, um, and then the other thing that I, I think that, um, that you brought up there, so I mean, the assets of things, again, I mean, how many times have we heard, hey, we got a handshake partnership agreement, one of the guys is the technician, he brings all, he brings all his equipment.

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20:06And then leaves in the middle of the night with all of the stuff, right? So if we're going to have a 50/50 partnership, then maybe your, you know, maybe your assets that you bring to the table are your contribution, but that equipment is now owned by the entity. And not you as the individual, because I'm bringing cash to the table, you're bringing equipment to the table, and you can't leave at 2 o'clock in the morning with all the business assets, you know, that it takes to produce a profit, and just because you get upset about something, right?

20:36But we hear it all the time, happens constantly, right? And it's like, look, if you're not willing to take all your tools and equipment that you've accumulated and make it business assets because you don't trust that that guy's going to be your partner, and he's— maybe he's bringing $100 grand of operating cash into the business as business assets, and you're bringing $100,000 worth of tools.

21:00It's all the company's now, right? That's— and if you're not comfortable with that, maybe you don't need to be a partner with this guy, right, or gal, right? So these are real things to talk about now. What I had, and at the advice of my Elite coach at the time, was 51/49. And before we went into— now, this was, uh, he's a store manager for me.

21:26Um, you know, he said, I'm, I'm never going to leave the business unless it's to open my own business. Um, and I, I obviously didn't want that to happen. Uh, we were, um, I was looking to get my second location at the time. And I was like, hey man, why don't you stay and run store 1 and you put in some seed cash and we'll go open up store number 2 and we'll do 51-49 on it.

21:56And, you know, and but understand that that means that ultimately final word and decision falls on the 51 and 51 is the boss. Now we're sharing, we're sharing profits almost exactly even, right? There's a 2% variance, right? So when there's distributions, you know, if we take $100 out of the company, $49 of it is yours, right? $51 of it is mine. So there's a very nearly equitable distribution of the spoils, right?

22:25But it is not in any way equal in the distribution of authority. Uh, so there's a very clear hierarchy, and I think that that is a healthier way to go about it. Um, and still, even with that and with an ironclad partnership agreement and a very clear understanding, we had all the uncomfortable conversations in advance. Um, still, after, you know, 5 years, we just started to rub, rub on each other and had, you know, some friction.

22:54And but it allowed us to, you know, get divorced with minimal, uh, with minimal salt, you know. So yeah, I think it worked. I think it worked okay. And, um, it was a safety blanket for me because I was scared to go out on my own, right? Uh, and it helped him get his feet under him and learn how to operate a business a little bit.

23:17And now he has a successful business after we split paths. And so it ended up being good for both of us, but I think the intentionality with which we went about it and the clear communication that was involved early on helped establish that. So I believe that if you're going to go into partnership, that's one of the best ways that you can do it.

23:42The other thing that I've seen a lot of guys do who are, you know, trying to build large, larger operations with multiple, uh, locations is they'll have a smaller percentage minority partner who is the operating, uh, manager, owner of that location, right? So there might be somebody that has 10, 15, 20 stores, and each store has a 10% owner that's a separate 10% owner, and they run that store, and they, they're there open to close, and they have that ownership and that buy-in.

24:15And I'm fascinated by that concept and that methodology, but I'm not familiar with it because I don't firsthand know anyone like intimately enough that we can have these conversations that's done it that way. Do you have any exposure to that, Matt? So I mean, the, the only exposure that I would have to that would be just through the private equity world, because I mean, that is essentially how private equity operates in a lot of cases, um, whether that's an internal team member that has some sort of equity stake in the overall entity as a whole.

24:45And so the, the family business that we had that we sold out to private equity, the individual that they put in charge of running that project, he was the operations manager for that arm of the private equity company. And he had an equity stake in each one of the companies that were owned in that side of the— in that portfolio of the fund.

25:08So And it was a small percentage, but it was a big enough of a percentage that it was worth it for him to manage it well when it exited, uh, because, you know, his return on, on, on his time was considerably more than what his salary was to, to run it at that point in time. Yeah, yeah, that's right. And so, um, I've seen it that way, and I do know of people that, um, in our industry that do exactly, you know, exactly like you said, that kind of run that same model of giving— whether, whether they're giving a profit share type agreement, you know, to a store manager, or they've actually cut them in

25:51as part of the, the ownership structure. I've seen it both ways. Yeah, I think it would be interesting to have an episode in the future talking about, uh, kind of non-traditional, uh, compensation for, you know, really important employees. I don't want to say golden handcuffs because it implies something negative almost, but ways to, you know, was it phantom stock or profit share or how other ways that people have found to really highly reward key employees for high performance and to keep them invested with an ownership mentality in the business, maybe without actually giving shares of the business, you know.

26:39Yeah, I think— go ahead. I mean, what I was going to say is I, I think that those— I think that those, um, performance plans can work very well if you have the right type of employee with an owner mindset. Um, I think if you, if you give that type of a plan to an employee that doesn't understand the concepts of the P&L and net profit very well, it's just a bonus, and they don't really understand how they're getting that money, and therefore it doesn't really have the impact that you would intend to have on it.

27:14But I mean, if you look at it, almost all of your corporate-run, um, food chains work that way to some extent, right? So your store manager runs the P&L of the store, and they meet with corporate, you know, on a monthly basis and have to go over the areas on the P&L. And they get paid off— they get some sort of a commission off of the net profit of the store, or in some cases the gross profit.

27:42But even at like a Pizza Hut level, you know, you know, down to that. But certainly once you get into like Applebee's and Ruby Tuesdays and those kind of chain stores, they typically run that type of model. And, you know, that was one of the other things that I wanted to say. There's a lot of other industries that make partnerships work very successfully.

28:02I just think they come into the partnership agreements in a different way, right? You know, they're more— the partnerships are more white-collar and strategic than they are, you know, handshake friend or family. And I think that's the biggest difference in our industry that we see is we come into this with a lot of, you know, naivety. Is that the word? Um, yeah, you know, uh, trust, trust.

28:28And there's a lot of trust and we have a lot of good intentions on the front end. And, you know, you know, we, you know, we're going to do the handshake and, you know, the blood oath and everything's going to be fine. And It's— but there's not a lot of strategy put into what the partnership is. But I think partnerships can definitely work.

28:46I don't think that there's necessarily a, a 100% reason to always stay away from it. I think family partnerships are something that should definitely be, be met with some level of caution because that's always— not only destroy a business, you also destroy a family. Make Christmas awkward forever. That's right. You know, I do want to back up real quick. You mentioned that there's not any point in giving one of those types of plans or small equity shares to a key employee if they don't understand how it's structured.

29:24They don't know how to read a P&L and a balance sheet. And I think that is really important and really often missed And not everyone is a natural teacher, right? So just because you understand how to read your financials and what, you know, knobs to turn to make the numbers move in different directions and that kind of thing doesn't mean that you can impart that knowledge on someone else.

29:50One of the things that I've done to good effect is I sent the guy that we were talking about before, who was a manager who became my partner for 5 years and now my director of operations, I've also sent them, and I'm thinking about sending another one, uh, in 2 months. You've got another one coming up in Charlotte, North Carolina. It's the Elite Fly with the Eagles program, um, and it's 3 days, but it's like a complete shop operations crash course boot camp, right?

30:19It's— now I know they've got financials, they've got marketing, they've got hiring and recruiting, they've got benefits, they've got sales, they've got everything in that, right? Yeah. And so what we've really done, so we've kind of revamped it over the last 2 years Um, so even, even Steven that's been there before, it would be completely different, unrecognizable if he came to the one in Charlotte.

30:38Um, but we just hosted one in Los Angeles last month in February, and it was the same group that we hosted to last year, uh, automotive group. Uh, they, they requested that we come back out again. I would say probably 50% of the, of the people in attendance there were reoccurring from the previous year. Revisiting with us. And, and the feedback that we got was they thought they were going to come and get the same thing that they got last year, and they were just happy to kind of get, you know, revitalized and pepped up and all that kind of stuff.

31:09They were like, man, this was completely different. Um, and so the really, the outline that we have, you know, that we've created now, we tried to— it used to be so much information that it was hard to come back and be actionable with it because you just got, you got a small sample size of so much. And it was all really good, but it was really difficult to, to come back and say, I'm going to do this because I learned this.

31:32So what we did was day 2 of, of Eagles is now we do a complete deep dive into the financials and it is 8 hours of the financials. So we're, we're going, we're doing workshops on the P&L, we're doing a breakeven workshop where you take your P&L and we sit down and calculate your breakeven in the class., we determine, you know, we take that information and figure out what your labor pricing strategy should be and, you know, determine, you know, what your effective labor rate target should be, what your door rate target should be.

32:06Uh, we spend a lot of time, you know, breaking down the different benchmarks inside of the P&L, much like we've done on the show before. Um, and then we do the same thing with the balance sheet and try to, try to put some time on the balance sheet. And then give some, some simple KPI structures that they can follow when they go back, that try to help them learn the business math without it being so, you know, so complicated that they feel like they need a CPA, you know, license to be able to get it done.

32:37So just some quick rules of thumb, you know, that they can, they can judge the health of the business in different areas. And then day 3 is operational excellence. Where we spend some time going over what the core processes of the business should be. How do you write a process? After you write a process, what do you do with it? How do you implement it with the team?

32:59And so we do some role plays, you know, where we're going to ask— we do a workshop where we ask the team to build out an SOP based off the structure that we've provided, and then we role play the implementation of that. And it's, uh, it's— it really is a It's an incredible 3-day course, um, with a, a tremendous amount of take-home value.

33:22Okay, let me put in a little bit of shameless plug here. It's, uh, May 14th through 16th in Charlotte. Uh, it's the Fly with the Eagles, uh, boot camp. If you go to eliteworldwide.com/events, you can register there. Um, and if you use Confessions300 as a coupon code, uh, they'll take $300 off the registration price, which is a killer good deal. So Confessions300, it's elite, uh, eliteworldwide.com/events, and use code Confessions300 and save a bunch of money.

33:57I'm— I feel like I'm definitely gonna, uh, send Steven, if not, uh, Steven plus one, uh, to that. So Interesting. I wish I could go, but I've got another event I've got to go to in Virginia immediately after that, and Amanda would kill me if I was gone for 5 straight days yet again. Yeah. So, um, all right, so I wanted to— I want to dig into what a partnership agreement looks like, um, you know, what some of the key features of a solid partnership agreement might be, um, and what, uh, you know, what are some of the considerations?

34:33You said that you sat down with your attorney and you went through all the what-if scenarios. That is super important to go through all the what-ifs. And so, you know, just for example, uh, part of my partnership agreement was what if one of us dies, right? I don't want to be in business with his, uh, grieving widow, and he doesn't want to be in business with my grieving widow if that happens.

34:58So what happens to the other person's shares if one of us dies, right? And there are multiple ways to go about that, and that can be discussed. You should discuss that with your business coach. You should discuss that with your attorney. If you don't have a business coach, obviously you should call Elite. Um, what happens if, uh, they get a divorce and he loses assets, or your, your business partner loses assets to their spouse, uh, in the divorce?

35:25How does that affect your business potentially? Um, you know, one of the things that was part of our partnership agreement was that our wives signed the partnership agreement waiving all right to any business assets, you know. But what happens if we're single when we start the partnership and then we get married in the middle of the partnership and then it falls apart, right?

35:48So you have to consider all of those things, and you need to have the answer to those what-ifs written out in the partnership agreement that everybody agrees to. Um, so those are just a few of the scenarios. And you're 100% right. So we played that on 3 different visits, um, and I would say we probably had 20 hours wrapped up between those 3, you know, conversations and then the conversations we had to have after, you know, after those meetings to come up with the answers.

36:18And he gave us a bunch of— he gave us survey questionnaires, right? And we had to fill out the survey questionnaires of, you know, how do you see this and how do you see this? And then we would bring it in. So it was essentially an alignment survey, you know, that he had for— here's a scenario, how do you, you know, what is your opinion on this scenario, right?

36:37And then, you know, the partner would write out his idea of how that should go and I would write out mine. And then we had to sit there and talk about it, you know, when we got to the meeting. And he would, he would advise me and he would advise him to get advice from his attorney counsel on ramifications of that for him on his side of the equation.

36:58And again, you'll be surprised how much some of those weird what-ifs happen. I mean, the same concept of having an employee and all the weird stories that we could tell having employees over time of, you know, why they end up exiting the company. You know, there's just, you know, anytime people are involved in more than one involved, anything is possible. And like you said, nobody thinks about somebody getting hit by a bus or a plane crash or, you know, like you said, two single people getting together and then they both end up getting married.

37:29Now the spouses are intermingled in it, you know, because they're 50/50 on their end of things and that wasn't defined in the agreement and so on and so forth. Hey, it's me, Mike's kid. Want to tell us your wild shop stories? Or maybe you just think my dad's totally wrong. Call us at 704-CONFESS and leave a message. You can tell us we're awesome, or you can tell us we're idiots.

37:51We're cool either way. That's 704-CONFESS. Just don't make it too weird. All right, so much warmer in here. My tootsies were freezing. So, you know, that— I think again what we were talking about was making sure that you go through the what-if scenarios. And if you don't know what all the what-if scenarios are, then again, your attorney does. If you have a business attorney, they've, they've, they've gone through this exercise before and they can, they can feed up those scenarios for you.

38:21I like what you talked about, about having a, uh, having surveys that both of you fill out separately and then come together and look at what you think, how you think it would have worked out. Because unspoken expectations and assumptions is one of the biggest things that sinks a partnership. Yeah. And realizing how far apart what your assumptions were can be really eye-opening for sure.

38:48Um, another one of the scenarios that really needs to be covered in, uh, or another one of the things that really needs to be covered in a partnership agreement, I think, is I think it's reasonable to have, uh, job descriptions in there, uh, what the expectations for each person are and what their areas of responsibility are. And especially if you've got, you know, that variable skill scenario where one person is the service advisor, one person is the technician, or one person is bringing, um, all the job skills and one person is bringing all the money.

39:22Yeah, you know, sometimes just bringing money is enough, right? And, and get out of the way and let the other person go about it. But that needs to be defined. Yeah, because what happens if the handshake agreement was, I'm just going to bring you money and you're going to go build a business, and then 6 months in, this— the money person is like, I want to start exerting some control over how you do things, right?

39:42Um, well, and you know, if it's going to be that way, what you're talking about there is, is a, you know, is a financial backer and then a sweat equity backer, right? And you know, there needs to be some some understanding. If there's somebody with sweat equity involved, how does that— how does their equity vest in the company? And that was what we spent a lot of our time on, because that's exactly what our scenario was, is I was just a guy that wrote a check, um, and the, the project had a predetermined budget about how much was supposed to be to design the, you know, the prototype.

40:14And we, we put in milestones that said, I'm only gonna— like, it has to get to milestone by this date and time, or else there is no vesting of the, the rest of the project. So that way, that protects you as the financial backer of saying, I'm not just going to endlessly keep writing money out of my account for something that, for, you know, you as the sweat equity partner aren't delivering on, right?

40:38You're constantly missing, missing objectives and deadlines, then that's not a sound investment for me on a financial backer side. So, you know, making sure that you understand that, you know, if you do have a sweat equity partner, what do they have to produce to— for their shares to vest, right? Because you can't start off with— if you have a 60/40 partnership and I'm 60% because I'm the money and you're 40% because you're the sweat equity, and on day one your shares are vested with no proof of concept, right?

41:09That, that doesn't work out very well, right? So there should be some level of proof that you can deliver on the return that I'm expecting before your shares vest. And that those conversations need to, you know, like I said, they just, they got to be had. And most of the time, I would say, I would say 90% of partnerships would never start if they truly sat down and had these conversations.

41:33And that's probably not a bad thing. That's a good thing, right? Um, yeah, so because most people would say, you know, well, I'm not going to come and work for XYZ for, you know, a, a worker's salary, you know, so to speak. Yeah, you know, with no guarantee of, you know, of payout. But when you start a business, there's no guarantee of payout, you know.

41:58I try to tell them absolutely the reality. I'm not saying that, and I don't say this with a source of pride because it was my own stupidity as to why it took this long, but I I went 3 years when I started my business with no salary. And, you know, so there's no guarantee that just because you start the business, even without a partner, you're going to be successful right out of the gate, you know, right out of the gate.

42:18And I remember people telling me, you know, really successful people that I knew, they're like, look, plan on, plan on living very skimpy for 3 years. And I'm like, oh no, this is— we're gonna be just fine. And, uh, man, Yeah, that Firestone that I worked at was doing $3 million a year in revenue. I know that they were making at least $1.5 million.

42:37That's right. Yeah. And so, yeah, you know, so you gotta, you know, I think that, you know, just really understanding how both parties vest, you know, again, like you said, what the distribution looks like when it actually does start making money, um, you know, because that's the other thing is, is most people don't get into a bunch of— well, there's not a lot of arguments in the middle.

43:01There's a lot of arguments on the polar ends of it, which are the business is losing money and one person is taking a lion's share of the loss and there's resentment that the other one is not right. Or there is the business is wildly successful and one person is taking a lion's share of the benefit of it and then the other person is resentful.

43:20Right. And so both of those sides of the spectrum really need to be fleshed out. What does it look like if the business is not doing well? And if you know going into it that you're taking all the financial risk on the front end and then sharing some of the reward, you can't be mad about it when that happens, you know, for sure.

43:41Um, so let's talk about, uh, buy-sell agreements, uh, right of first offer, right of first refusal, uh, valuation formulas, that kind of thing. I think it's really important that, uh, because a lot of times You know, life changes. Um, I think that there should be in a partnership agreement, uh, a number of triggers that enact a buy-sell agreement. Um, someone is in an accident and is not dead but is incapacitated for 6 months or more, for whatever your time frame is, or for life, or whatever it might be.

44:16Well, then that enacts the buy-sell agreement, and here's how it's formulated. And you can Your creativity and ability to agree defines, you know, how that can be. But, um, it might just be that, you know what, I'm sick and tired of this business, I'm gonna go get a job flipping burgers at McDonald's and have low stress. Um, that same situation, you need to know my partner can't go sell to just any, uh, anybody because I don't want to be in business with somebody else.

44:48Uh, so the person who has the right to purchase first is the other shareholder, right? Um, and not just, well, yeah, of course I would offer to sell it to you first. Well, what if you hate each other? I'm gonna go sell it to a jerk, right? You know, or whatever. So that needs to be in writing, and, uh, the mechanism by which that is done— how is the notification given?

45:09How is— what— how much time is the other partner allowed to put together the financing to be able to buy the shares from you. Is there a third-party arbitration that comes in and sets the value of the company, or do you— are you presetting the value of the company based off of, you know, the operating agreement? Um, yeah, all of those things.

45:27And like you said, you can, you can have different buy-sell agreements for different scenarios for the buy-sell, right? In other words, you know, there's a voluntary exit. Hey, what if I as the majority partner want to push you out? I want to leverage you out. You know, I mean, and you can get the time to have that conversation is before you start.

45:48Yeah, but you can set it up in the front end that says, hey, I'm going to set this up that says if I, if I do this and I give you XYZ notice, I'm going to buy you out of what your, you know, what your shares are, because I am the majority and I have the right to do that on the front end, right?

46:03Um, you can set it up to where, you know, there's a different buy-sell agreement for a divorce. For, you know, what happens, what happens if bankruptcy, you know, goes down. All of those things can be, you know, if there is misconduct, right? So if, if one of the individuals is an operating entity, which is how a lot of this works, what happens if there's a— if they were an employee and you— and there was a fireable offense, a sexual harassment, inappropriate you know, inappropriate communication with a customer, they develop some sort of a, you know, a life habit that doesn't, you know, promote well to their, their work environment.

46:43And as if they were an employee, you would fire them, but now you can't fire them because they're a business partner, right? If you think about these things on the front end, you can set it up that says, hey, there's a morality clause, you know, in this that says, if, you know, if this happens, you lose your vested shares. Right. I have an acquaintance who was in a technology startup and they were doing really well and they were growing rapidly.

47:12It was 3 partners and one of the partners had a drinking problem, had a drinking habit, and he was, you know, probably a functional alcoholic. Right. But when he was inebriated, he would do really inappropriate stuff. And he did some really inappropriate stuff in public while drunk, and it hit the social medias, right? Yep. Uh, and that would have destroyed their company pretty quickly, uh, but they had that type of agreement.

47:46And, uh, press release within 48 hours, he's— his employment's been— or his, his association with the company has been terminated. He's no longer a shareholder, he has no equity in the business, and they erased him from all online material. I mean, it's like he didn't exist. But that probably saved that company, uh, that they had that in place and they acted immediately.

48:11And that doesn't happen unless you've got, uh, that type of agreement in place. Yep. And that's something— so I mean, the, the what-if game, I mean, you have to go way far down the rabbit hole in all aspects of the agreement. You know, like you said, when you're thinking about this stuff, because I mean, sure, you don't know what can happen tomorrow.

48:30Anything can happen and people change. We're dynamic individuals. Our lives change, our situations change, our personalities change. Okay, let's call it what it is. If you're going to step away from the shop, it better be worth it. Period. Tectonic 2026 is designed for that reality. Role-based sessions, hands-on workshops, and conversations with people who actually understand what it takes to keep a shop profitable and a team sane.

48:54And I like that it doesn't pretend we all need the same thing. Owners, advisors, and technicians don't have the same headaches, so you're not wasting time sitting through sessions that don't apply to your day-to-day life. You should leave with a clearer idea of what to fix first, what to tighten up, and importantly, what you should stop wasting time on. Presented by TechMetric, Tectonic is happening April 9th through 11th in Houston, Texas.

49:16Tickets are on sale now and my listeners get $500 off standard pricing with code Confessions500. Go to techmetric.com/tectonic. That's T-E-K-T-O-N-I-C. Or tap the link in the show notes for more. Somebody can, like you said, somebody can wake up tomorrow and have a bad day and make a controversial tweet or X or Facebook post or whatever we want to call it. And, uh, and it has a rippling impact.

49:43On the entire organization. So, you know, those are just things that, like you said, just have to really be, you know, really be thought about. And so I think one last thing that we'll touch on, the— I think you need to look at the document also as kind of a living, breathing document that needs to be revisited on a semi-regular basis. Yeah, um, just like an estate plan, uh, you know, what your estate plan is now versus, you know, 15 years from now, where you are in life, your financial standing, the needs of your family and children, uh, all that changes on a regular basis.

50:24You know, what you think the business will look like when you're starting it versus what it looks like in 10 years typically are wildly different things, right? So Uh, it is reasonable to revisit those agreements as long as everybody agrees on any adjustments that are made, right? Um, but having a rock-solid partnership agreement and business agreement in place and put it in the safe is better than not having one at all.

50:52Yeah. But have one and then revisit it every 3 years, I think is reasonable. Uh, whatever timeframe is, is reasonable for you and adjust it as needed. Like, two single individuals start a business and they both end up married, and that wasn't part of the agreement. You need to make that part of the agreement, right? You need to make those adjustments. Um, you had no kids, now you have kids that you want to provide for.

51:13Make adjustments. The nature of the marketplace has changed, the nature of the business has changed. Maybe you started out as a detailing company and now you're an auto repair business. Maybe you started out as a diesel specialty and now you're full service. Things change, and so you need to be willing to revisit, uh, partnership agreements and make adjustments. So, yep. And, you know, 100%, um, I would say one of the, you know, one of the best things that I learned from my dad— my dad was really big on us having a family meeting, um, you know, amongst him and the kids, even if, even if some of us were— because not all of us were

51:54always in the, you know, active in the business. But we met twice a year, every year, and he would sit down and, you know, we had a stakeholders meeting and, you know, we had conversations about, you know, who was in the will, who was not in the will, you know, what that looked like. And, you know, based off of the business and what the, you know, what the trust looked like and all that kind of stuff.

52:19And it changed. I mean, it It changed every single time we met, and sometimes it was voluntary change that everybody was like, yeah, that makes sense. And sometimes you didn't get a say in it. It's just how he felt in the moment. It's what it was. But at least you knew, you know, what was going on. And I would say anybody that has a— if you're filling out your articles of incorporation at the end of the year and you have a partner that you need to sign off on, on the articles of incorporation, you should meet at least twice a year and have some sort of a, you know, a, a real you know, a

52:51real meeting of the minds of, of the structure of the business, the performance of the business, you know, review the partnership and, and pull out those, you know, pull out that partnership agreement and remind yourself of what it was. Is it still valid, right? Did you come up with more questions that you didn't even think about on the front end? Because that can happen too.

53:15You know, what, what happens if you, if you create an entity together as a one-store location, that store is wildly successful, and the other partner wants to take, you know, wants to take his earnings that he's made off of that and go start location number 2, right? Is there anything that's— is there any non-compete with a, you know, with the— who owns the licensing of the name?

53:40Because the entity can be owned 100% by, you know, by one individual if there's an operating LLC and a licensing LLC. Right. And, and those are things that need to be talked about or what keeps them from starting another business on a completely different name. Right. Have you, you know, have you set an area up that says, hey, no competing, but you can't invest in a competing business within 50 miles of this location?

54:07Or any location that we would create with this name. Yeah, um, you know, all those things really need to be, you know, need to be thought about and talked about. And you might not even be thinking about multiple locations when you first open up your, you know, your one-bay, your one-bay, two-man operation. And then all of a sudden all your dreams come true and it, you know, you have all this money and now other options are available to you.

54:30You know, you just really got to go through, you know, go through the checklist Um, if you're— if you don't, if you don't know how to do this, reach out to us at Elite. We do have these checklists available. Like you said, you know, your coach helps you go through that and gave you guys a lot to think about. So if you're— if you're entertaining the idea of a partnership and, and you're unsure, you don't have support on this, reach out to us.

54:55At bare minimum, we can email you a checklist of things that you guys need to sit down and talk about that covers a lot about what we talked about today. Awesome. Thanks, man. I think there's a lot of value there. Not the normal level of shenanigans and, uh, and inappropriate jokes that I typically bring to the table, but maybe some actual value.

55:14Um, I think that, uh, is an important conversation to be had. So, um, that's good, man. I appreciate you. Yeah, man, thank you. Uh, remember, Fly with the Eagles. Uh, what were those dates again? It's, uh, May 14th through the 16th in Charlotte. Okay, uh, this year, elite worldwide.com/events. Use code Confessions300, you'll get $300 off registration. Yeah, and we do cap those classes out at 60, um, 60 attendees to make sure that everybody gets a little bit of one-on-one attention while we're there.

55:52And y'all have been selling them out of late. We have sold out the last 4. So if you're entertaining it from a value standpoint, the normal price is $699. We have a discount code I know that you alluded to, and we're going to get some of the information out on the Facebook page there with the registration link. But there's a heavy discount for the listeners.

56:13I can promise you it's the best value in automotive training out there. No question about it. 3 days of training for $399 with that coupon code is crazy good. Yeah, and I know it seems like a deal that's too good to be true. Why would, you know, there can't be that much value in a class for $399. Um, our, I mean, they're, we're upfront and honest about it.

56:33I mean, obviously we have some selfish benefit of having people there because we would love an opportunity to, to share with you for 3 days and then turn that into a relationship after the fact. But it's not a sales course. We're not sitting there and it, you know, There are some companies that use that as a, you get 1 hour of value and then, you know, 6 hours of, you know, beat over the head to sign up for their, their program.

56:56Yeah. And, uh, that's not, that's not what our course is. We're trying to pack as much value into those 3 days as possible because, you know, our belief is if we can provide that value for you over the 3 days, that you're going to see the value in what you could get out of our services after that as well. And out of the— we had 60 attend— or 65 attendees at the last one in Los Angeles.

57:20Out of the people in that room, I mean, some of the other benefits that you get outside of just listening to myself and Tom and Joe talk for 3 days, and you know this through being in the peer group, you know, the networking ability that you get from, you know, some of the other attendees is just as good, if not more valuable than the training that we're going to give you standing up there and talking.

57:41There were 4 shop owners in that room that, that when we were going around and doing the, you know, the P&L reviews, netted over $1 million at one location. So, I mean, to have 4 people in one room that are netting $1 million out of one store, that's rare, you know. And I'm not saying we have that at every event, but I mean, how much would you, you know, how much would you pay to sit down in a room with somebody that was, you know, that successful?

58:06That you had, you got 3 days of access to, to be able to ask questions along with getting some outside training, you know. And I think it's worth noting that these are very finely tuned operators who are still coming to classes like this. There's always something to learn and still asking questions. And, you know, and that's, that's one thing, and, and you notice this too, the shop owners that are usually the best are the ones that go to training and act like they don't know anything.

58:34You know, those are usually the ones that when we sit down and take a look at the numbers, they're, you know, they're, they're— so you're saying when I, when I go to training and act like I know everything, uh, I'm surrounded by people who are sitting there quiet? You're really good at self-deprecation. I would put you in that category. I haven't, uh, I haven't seen you stand up and, and beat your chest in front of a group of people before, so I'll give you credit on that.

59:03Oh man. All right. Well, thank you for that. I'm going to let you go, man. It's been a great conversation. I appreciate you. Kids are starting to stir. I think it's about time to get ready for the beach. Yeah, well, you guys enjoy the beach and look forward to seeing you guys coming up at some of the events. Awesome. See you, dude.

59:21All right. See you. Thanks for listening to Confessions of a Shop Owner, where we lay it all out. The good, the bad, and sometimes the super messed up. I'm your host, Mike Allen, here to remind you that even the pros screw it up sometimes. So why not laugh a little bit? Learn a little bit and maybe have another drink. You got a confession of your own or a topic you'd like me to cover?

59:38Or do you just want to let me know what an idiot I am? Email mike@confessionsofashopowner.com or call and leave a message. The number is 704-CONFESS. That's 704-266-3377. If you enjoyed this episode, be sure to like, subscribe, or follow. Join us on this crazy journey that is shop ownership. I'll see you on the next episode. All right guys, AI class. Learn how to use AI so that you can make it your bitch and you don't become its bitch.

1:00:41Saturday, June 13th, Seth Thorson's teaching a full-day class in Raleigh, North Carolina. Tap the link in the show notes or scan the QR code on your screen to learn more. It's going to be awesome.