Surviving the ups, downs and dissolution of cheer partnerships
By Lee Erica Elder
If the worst happens you must be positive, pick up the pieces and move on. Talk about the deeper thought processes of your staff to see if the foundational values are the same. These are what will make or break a business. You must have commitment to a common purpose to sustain a business.” —Cheer gym owner and coach Debbie Love, on building a new partnership after one fails.
“All good things must come to an end.” “Breaking up is hard to do.” For cheer gym owners faced with a merger or partnership gone wrong, these sayings aren’t cliché, they’re reality. A partnership can be a wonderful opportunity to combine strengths and build powerhouse teams, but when the livelihood of a gym, relationships with athletes and parents and the reputations of coaches and staff are at stake, the dissolution of a business partnership can feel like an insurmountable obstacle. The ending of a cheer merger can have a profound and lasting impact on athletes and families, and so many factors may be tied up in it that it’s almost impossible to know where to start. We asked gym owners and coaches to share their experiences and lessons learned from the dissolution of partnerships, and interviewed attorneys and business advisors for tips on must-know dos and don’ts.
The Heart of the Matter
In the Beginning
Ever heard the expression “Two heads are better than one”? That’s exactly what Cindy Herbst, owner and head coach of Heart of Texas Cheer and Dance, in Waco, TX, had in mind when she decided to join forces with a local gym. “Our gym is in a small town with only one other cheer gym,” she says. “Both gyms had very talented athletes, but our teams were small. By merging we would be combining our talent and no longer have to compete with each other for athletes. Our teams would be larger, and we’d be more competitive with the larger gyms.” At first, things went along swimmingly, each side slowly integrating their worlds. They began the process by combining teams (each had about the same number of members) and keeping their fees the same. Each gym would contribute coaches, and both facilities would be used for practices. The newly formed unit began working with a company specializing in children’s activity centers and mergers to legally finalize the deal. Herbst and Daniel Ruiz, the cheer and dance program director and head choreographer, were pleasantly surprised by how well the newly formed staff got along. “The different personalities complemented each other, and it seemed as though things would work out great,” he says.
Unfortunately, the relationship wasn’t meant to be. Several factors led up to the break, but ultimately, differences in philosophies, coaching and communication styles led the new partners to announce their wish to end the partnership about a year after its inception.
Gym owner Debbie Love is also all too familiar with the breach of cheer partnerships. “I’ve been through this several times,” says Love. “I inherited a program that had just about died in 1999–2000. We changed the name slightly so that our consumers still recognized the name but with different people in charge of the program. There were three of us in the partnership [and the business was] split three ways evenly. Everyone worked very hard together and we had a very special thing going! We were about the kids and their development both on and off the floor.” Love’s gym was a gymnastics program with cheerleading tumbling classes. A few years later, her gym merged with a local cheer program. The new program looked great on paper, but died out when a super cheer gym opened across town and took their business.
Love’s problems with partners continued, as another merger proved unsuccessful. “It was a disaster. The owners of the building we were in and the owners of the new gym could not decide on a figure for the rent of the building,” Love says. “And all of the staff and athletics had already merged before the paperwork was drawn up, which was the first big mistake.” Still, there was high anticipation for success on both sides, because staff worked well together and the kids were excelling. Practice wear was ordered, uniforms were sized and competitions were planned. “The bottom dropped out when no decision could be made as to the building details, so we had to unmerge the two programs,” she says. “In doing so, one program lost about 70 to 80 kids because parents were afraid they wouldn’t get their money back from ordering team supplies. This led to the demise of one of the gyms.”
The Good, the Bad and the Ugly
Sadly, these stories are not unique. “Lots of gyms have merged, then split,” says Herbst. “It’s a risky situation.” Especially in our current fragile economic state, it’s common for gyms to want to pool resources, ideas and athletes to work toward common goals. But like any relationship, certain factors must be on solid ground if any progress is to be made. Sometimes the reasons that seem to be the best for going into a partnership end up leading to its demise. “Often business owners use symptoms to justify the move to a partnership,” says Linda A. Swerling, a business consultant with Level II Solutions, in Brookline, MA. “Needing someone to share successes, reduce loneliness or offer collegiality may not translate to a good partnership.”
The Breakdown
Communication is one of the most important factors in a business partnership, and when it breaks down, the results can be downright excruciating. Looking back, Herbst cites a lack of communication as part of her breakup. “You need to know everything—everything needs to be out on the table,” she says. A high school coach for many years, she was used to picking up the slack and taking on extra responsibility when necessary, which, in the merger, often translated into extra work and frustration on her end, without much communication from the other side. “There were times when I did things that I didn’t think through,” she says. “Like if a fundraiser came around, I would just organize it without speaking to them first. I would do things because I was used to doing them on my own, then, after the fact, I realized that upset them because they would have someone come to them and ask a question about it and they didn’t know the answer.”
The Fallout
Cheer families often have an influence on the lives of athletes that’s comparable to that of their biological ones. So much time and energy goes into making the gym a home away from home, significant changes to the chemistry and balance of that environment can have a lasting effect on kids. It’s imperative to level with parents and athletes in the event of dissolution. When news of her former partner’s new gym schedule quickly circulated to parents and staff only minutes after the break was announced, Herbst found herself scrambling to explain the situation. “We said we understood people had a decision to make, we respected that, and we would wait until after their meeting to have ours,” says Herbst, who admits it was a difficult time, “because I just didn’t know what the future was going to be like.” Be honest, forthcoming and patient as you remind parents that your focus remains on the athletes and their best interest. Parents may leave, but if you’ve been loyal to their kids, most will be loyal to your program.
A Story of Success
Some partnerships are built to last. Gym owner Cheryl Pasinato is currently one of four owners in a year-old merger, East Celebrity Elite, in Tewksbury, MA. “We had to decide whether we wanted to be a gym that did well locally in our area, or if we wanted to continue to be nationally successful and competitive in the entire country. Both programs wanted the latter,” she says. “When we first announced the merger, everyone was excited and then once the ‘honeymoon’ was over, many of the parents started keeping score with which shoes we were wearing, how we were running practices more like one gym than another, etc. We had many parent meetings telling them it wasn’t about colors, logos, facility changes—they needed to see the bigger picture and how now we were able to offer their children the best instruction, facility and events.” The new partnership works because egos are put aside, each partner brings something special to the table and all parties are on the same page about goals for the future.
No Reward Without Risk
Partnerships are risky, but if you’re informed and prepared, obstacles can be viewed as steps to improvement. “Talk about the deeper thought processes of your staff to see if the foundational values, such as ethics, morals and teaching positive attitudes to athletes, are the same,” says Love. “These are what will make or break a business. If the worst happens you must be positive, pick up the pieces and move on. You must have commitment to a common purpose to sustain a business.”
Although the dissolution of a business partnership can be devastating, it can also be a learning process, and build the foundation for a better future. “I would consider a partnership again, because of the positive way the partnership affected the athletes,” says Ruiz. “If done correctly, a merger can give the athletes stronger teams, more coaches and more resources to reach their potential. Don’t be afraid to discuss sensitive topics and issues, because those are the ones that will end up deteriorating the partnership and could lead to the demise of the new program. If these issues are deal breakers, then it would be far better to find that out prior to the merge than one season into it!”
Legal Aid: Understanding Partnerships and the Dissolution Process
Everything you ever wanted to know about partnerships but were afraid to ask.
We asked attorneys Dale Ward, of Hinkle Elkouri Law Firm LLC, in Wichita, KS, Roger E. Barton, of Barton, Barton & Plotkin LLP, in New York, NY, and business consultant Linda Swerling of Level II Solutions, in Brookline, MA, to break down the legal and financial essentials of partnerships and dissolution:
CBN: How does the law define a partnership?
Ward: Although the definition may vary from state to state, a partnership essentially consists of two or more persons carrying on a business as co-owners for profit.
CBN: What should gym owners know about limited and general partnerships, LLCs and any other applicable business partnerships, as far as determining which to enter into and what to cover in contracts?
Ward: In a general partnership, a partner is personally liable for the obligations of the partnership. In contrast to general partnerships, a limited partner is only liable to the extent of a limited partner’s capital contribution. The limited liability company (LLC), like a partnership, passes its tax consequences through to its members (the person or persons who have ownership interests in the limited liability company). Unless a corporation has elected “S” status, a corporation will be taxed on its income received. Owners of a limited liability company or corporation are also protected from personal liability arising out of the operations the company.
Barton: Most people set up a corporation or an LLC, structured like a partnership in terms of how the parties treat each other, but the law gives them liability protection.
CBN: What legal measures should be put in place before starting the business?
Ward: Formation of certain legal entities—such as a limited partnership, limited liability company or corporation—require a person to file some formation document with the secretary of state in the state of formation before using that entity to carry on a business. For example, a person forming a limited partnership would file a certificate of limited partnership which is typically required to document the partnership’s name, the agent who will receive service of process, and the general partners. Similarly, a person forming a limited liability company would file articles of organization, while a person forming a corporation would file articles of incorporation. In addition, most limited partnerships, limited liability companies and corporations have written agreements governing termination, operation and control of the company, and the allocation of income and losses.
The governing agreement for a partnership is a partnership agreement. For a limited liability company, it’s an operating agreement. And for a corporation, it’s the bylaws. Although a partnership agreement is not required for general partnerships, partners may consider entering into such an agreement for various reasons such as detailing the events that will cause dissolution of the partnership, determining distribution of partnership assets to partners upon winding up, or determining operation of the partnership upon dissociation of a partner.
Barton: For a smaller business, if there’s more than one owner, you definitely want to have an agreement between the owners so that it’s clear what everyone needs and expects from the partnership. If there’s a disagreement there should also be a mechanism in the partnership document or the operating agreement, which provides how that agreement will be handled. For example, parties may agree to go to a mutual third party like an arbitrator or they may agree up front about how certain key decisions should be made. You can build in provisions for how the economics of a potential dissolution should be handled. You should do it while everyone is still friends! It’s also important to consider death or disability needs and to plan for those.
Swerling: The business structure you choose affects how you can get money out of the business other than salary. Discuss with your attorney and accountant how to best optimize the agreement for financial flexibility. Insist that you have an exit strategy built into the agreement.
CBN: What other factors should involved parties keep in mind when starting a partnership?
Ward: An additional concern may include distinguishing between partner property versus partnership property. All business entities need to follow both the legal and corporate formalities in order to retain their separate identities as entities. For instance, a business entity should maintain a separate bank account in the name of the business, sign contracts in the name of the business and keep records of its meetings.
Swerling: Plan for organizing the company and informing internal and external relationships. Develop a new organization chart. Create a new business plan with new goals. Discuss how the new company will achieve these goals, chart cash flow and set a profitability model. It may be that the new organization will require a managing partner to oversee day-to-day operations. Your first and most important constituents are your employees. Explain to them the hows and whys and then move on to your clients, bankers, vendors and community. Develop a presentation that addresses how the business will improve, operate and leverage the strengths and expertise of the new partners.
CBN: What legal responsibility does each party have throughout the length of the partnership?
Ward: Legal responsibilities may include the fiduciary duties a partner owes to the partnership and other partners, the authority of a partner to bind the partnership through that partner’s acts, or the personal liability of a partner for partnership debts. A partner owes a duty of loyalty and a duty of care to the other partners and the partnership, which among other things typically prohibits the partner from entering into a business transaction in direct competition with the partnership or engaging in intentional misconduct against the partnership. A partner may also be prohibited from entering into certain transactions on behalf of the partnership as limited by that partner’s authority.
CBN: What happens if one person goes into debt, gets a divorce, etc? What happens to shared property?
Ward: As a separate legal entity, partnership property is owned in the name of the partnership. As such, a partner does not have an interest in partnership property and creditors of the partner may not reach that property to satisfy the partner’s personal obligations. A partner does have a transferable interest, treated as personal property, in that partner’s right to receive distributions or that partner’s share of profits and losses.
Barton: If you are a member of an LLC, you do not have personal liability—the extent of your liability is what you’ve invested into the company.
CBN: How do you dissolve a partnership?
Ward: Generally, a partnership may be dissolved in a number of ways, including by death of a partner, judicial decree, the occurrence of an event detailed in the partnership agreement requiring dissolution, and in cases of an at-will partnership, notification of withdrawal by a partner.
CBN: How can our readers find more information on business partnerships?
Ward: The secretary of state website in each state is often a good resource. Also, numerous books and publications are available on the topic of business partnerships. Many of these publications are available at your local bookstore or public library.
*Always speak with your CPA and attorney before entering into a business partnership!
Partner Planning
It’s tough to imagine the negative possibilities when there is so much promise and hope at the beginning stages of a partnership. But it’s important to be realistic and know what you could be getting into. “Success can create as many problems as failure,” says Swerling. “Take a step back from the initial enthusiasm and excitement of something new to discuss what to do in the following cases:
- Negative cash flow becomes an issue
- Crisis requires a partner to leave
- Partners do not get along
- Revenue stream cannot support the partnership
- An employee becomes a partner, is not effective and becomes a detriment.”
Swerling recommends the following exercise for potential or current partners to determine whether theirs is a good fit:
Step One: Partner A and Partner B each list their preferred responsibilities independent of one another.
Step Two: Identify where there is sole control, overlap and what’s missing in running the organization.
Step Three: Use the lists to create responsibilities for all of the operational areas of the business.
Swerling also advises potential partners to determine what income they need, estimate time willing to be spent at work versus personal time, and to assess family expectations about business. “Lists that overlap too much should raise a red flag,” says Swerling. “Styles and skills that are too similar may dilute the effectiveness of the new partnership.”
Linda A. Swerling has 23 years of experience with business consulting. She is the owner of and principal consultant with Level II Solutions, in Brookline MA (a company specializing in financial management and operations for companies in transition and growth).
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