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    4 Replies Latest reply on Jun 9, 2010 11:34 AM by 805business

    I need help with Business partnership

    805business Newbie
      I would like to acquire 50% of an established business. Can someone, who had gone
      through this process before, give me some tips?

      1.
      How should the value of the business be determined?
      2. What are the legal processes that I need to go through to be 1/2
      rightful owner of the business?
      3. How should reponsibilities be divided between 2 owners?
      4. Can I get a business loan to pay for this, since my potential partner would like to be paid upfront?

      I know there are so much that I don't know about this process. I would
      appreciate any help or tips.

      Thanks everyone for reading.
        • Re: I need help with Business partnership
          Teaspiller Wayfarer
          Congratulations on making the jump to (attempting) to be a business owner.

          The value should likely be based on future projected profits, as well as your ROI. This means that it's key to look at the capitalized value of the business, sales trends/profits and projections, as well as a realistic expectation for ROI.

          You should also be able to get a business loan provided you can show assets and/or free cash flow in the business.

          As far as the legal processes and responsibilities, I recommend that you consider enlisting the help of a tax attorney. They'll be able to advise you as to what business structure might work best for you (if a change needs to be made) as well as the division of responsibilities, which sometimes has tax implications, too. They'll also be able to help you determine if everything is in order before you make your investment, so there wont be any surprised later on down the road. I recommend taking a look at our site at http://www.teaspiller.com/tax-experts where we have a list of verified experts around the country who can help sort of everything out for a reasonable price.

          Hope this helps,
          Stephen
          • Re: I need help with Business partnership
            LUCKIEST Guide
            Business partnership

            Who r u?? Go to Members page and share some info.

            If I was going to be part of a partnership, I would talk to both my lawyer and SCORE.

            SCORE is FREE. Good luck
            <!--Session data-->
            • Re: I need help with Business partnership
              ArcSine Scout
              With respect to the division of duties, a crucial criterion is to make sure that each partner is wearing the hat(s) that lets him or her focus on their individual strengths. A partnership's value tends to be maximized when each partner is doing specifically what he or she does best, and further that the skills are 'complementary' such that some synergy is created.

              Don't get too hung up on dividing the duties so that the workload is evenly distributed to the nth degree....that's only a secondary consideration. Get everybody bringing their most value-producing talent to the table, and any inequities in workload can then be resolved via 'extra' salary, or bonuses, or such.

              I'm familiar with one very successful company owned by two 50/50 partners. One of the chaps is an MBA-type who's a whiz at biz management, administrative details, accounting, etc.....the other fellow's the guy born with the silver tongue who could sell ice cubes to Eskimos. They each spend their days focused on what they do best, and the result is a company that's really raking in the chips. It turns out that the accounting and biz-management duties require a few more hours each week that the selling function, but no problem. The MBA takes a slightly higher salary each week to compensate, and then they split the remaining profits equally (after taking their salaries). The end-of-the-day result is that they're both making a lot more money than they'd probably be earning if they obsessed over making sure neither partner works any more or fewer hours than the other.

              Regarding the financing facet of your question, it's +possible+--depending on the particular fact-set here--that you could bankroll your buy-in with some variant of what's called a leveraged recap. At its essence, it's a two-step dance whereby the company itself first borrows money from a bank or finance company, against the value of its assets. Step Two is the company giving the proceeds of the loan to the incumbent owner, to repurchase a significant portion of his equity. That gives him some 'cash up front', as he desires, and simultaneously makes his remaining equity small enough such that you can 'match' his equity balance--thereby making you an instant 50% partner--with a much smaller investment out of your pocket that what otherwise would have been required. You'll probably also build in an agreement that the subsequent loan payments come out of your half of the profits.

              It's an advantageous arrangement whenever the company has a stronger balance sheet than you do yourself....or the company's credit rating is little higher up the totem pole than yours. If so, it's likely you'll end up with borrowing terms that are much more palatable than you could have obtained with a strictly personal loan. On the flip side, of course, it requires that the company does indeed have the depth of high-quality, unencumbered assets necessary to make this leveraged recap do-able.

              Just a couple of thoughts, but I've really gotta 'ditto' the previous advice on your giving strong consideration to hiring some professional expertise. In a buy-in, partnership creation deal, there are way too many moving parts (tax, legal) involved to be able to get all the necessary advice via a forum. I've seen a lot of partnerships get put together with a "let's do it ourselves" mindset, but if things don't work out as planned down the road, the coin that was saved in the beginning usually becomes very expensive later.

              Best of success to you in your new venture!
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