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    9 Replies Latest reply on Jan 31, 2013 9:39 AM by Moderator Melinda

    Needing to buy out my partner (65k) to get my business back

    trevburdett Wayfarer

      I have been in the IT field for over 12 years and self-employed for 2 of those. I built a great reputation for my services and about 7 months ago, I fell into a great opportunity to take my IT services to a retail storefront/pc repair shop servicing both home users and business clients. With the help of a (supposed to be silent) partner and his investment, we purchased an already established location of 7 years, changed the name to my business name, and got everything for the store including the inventory for 100k. We put up 50k each, and I was to run the day to day and work the shop, he was to help bring in clients from his contacts and help with any other financials if needed.

       

      Because our purchase price of the location and the opening purchases totaled our entire investment, we continued to pay for the bills, payroll, inventory, and day-to-day operations out of the cash flow from the retail side and support contract side.

       

      Our first months were pretty decent. I had it figured that to break even on a monthly basis, we needed to net 12k a month. First month we net 8, second 14, third 24, fourth 22. We were on a roll and in November and December we hit a standstill. My partner was paying back large amounts to the original debts and left us high and dry at the end of December. We were practically broke. Then he had a heart attack.

       

      He is okay, but now his wife has stepped in and decided that she needs to run everything her way. She has no experience in the field, nor does she know how the place operates. It has become a nightmare to the point that all of my employees are ready to walk. I have tried to talk to my partner, but he is unable to return any of my calls and will not speak to me. Not sure what the deal is. However, his wife has said numerous times, that she will leave if I buy them out.

       

      The business is successful. We were just starting to get our sales team in order and this past month have had limited inventory, but still managed to pull in almost 30k in just services (all profit)! We are just about to get back in the swing of things except of the "wife" who has to control and approve every little item.

       

      I know that her name is not on anything, unless she has a power of attorney for him. But I want her out.

       

      The business in the second half o 2012 (since the store opened) has grossed 145k in sales. Netting a profit of 35k. The balance sheet shows us under with the original loans, and his part of the debt and or future profits have been figured to 65k.

       

      I am looking for help on how to either get her off our back short of walking out, or maybe someone who would like part ownership in exchange of helping buy them out. Any help would be appreciated!

        • Re: Needing to buy out my partner (65k) to get my business back
          Guide

          Hi Trevor,

           

          I'm sorry to hear about your misfortune. I would turn to your accountant for help. There might be away to buy them out without giving them all the money up front. You could put together a contract with your accountant and at that point an attorney that you both could agree on.

           

          The second suggestion would be to see if you could get a loan considering your business is doing well even in this economy. You might want to consider severing all ties at once (to which I wouldn't blame you). But I would consult your accountant with that one as well.

           

          The third option you mentioned (getting another partner). If you have been able to manage the company thus far without your partner, why would you need one? Me personally, if you already encountered one nightmare why would you take the chance and risk another one?  Good luck and let us know.

           

          Melinda

          • Re: Needing to buy out my partner (65k) to get my business back
            Ranger

            Hold the presses!  She has no legal hold on the business?  Then why are suffering her?  you might want your lawyer to respectfully show her the door .   Good luck!  Let us know how you make out .

             

            Joleen

            • Re: Needing to buy out my partner (65k) to get my business back
              phanio Pioneer

              This is a common problem in many businesses and could have easily been avoided with a strong partnership agreement in the beginning outlining what would happen should one partner not be able to perform.

              Regardless, there are many ways to get the funding you need.  First, start with your bank or a local bank that offers SBA loans - banks and the SBA usually like buyouts.

               

              Another suggestion would be to let the business setup it its own loan to the partner - i.e. pay the partner 20% of revenue or profits monthly until a certain level is met - at that point, the partner (or wife) will be out - might be the easiest way without taking on additional debt.

               

              Business Money Today

              • Re: Needing to buy out my partner (65k) to get my business back
                kushik Wayfarer

                Trevor,

                 

                Glad to hear you have a great business model, but sorry to hear about the partnership issues.

                 

                First and foremost, did you have an operating agreement? This is usually where you can spell out the duties of each partner and it's decision making powers.

                 

                Secondly, did you have a Buy - Sell agreement? This is typically where you state that either party can initiate the buyout, which then triggers their right to buy you out for your offering price.

                 

                Either way, I suggest consulting a business attorney and then a CPA. Also, be sure and document your activities, and contributions to the life of the business and as per your agreement.

                 

                You might also be able to get free business advice as your local chapter of SCORE.org

                • Re: Needing to buy out my partner (65k) to get my business back
                  larry Wayfarer

                  Trevor:

                  While many here have given some advice only the last person posting got close.

                  As a business owner of over 30 different successful businesses in my life the first question is how is the business structured? Is it  A partnership, corporation ( C corp. or sub S), LLS, FLP, or so on?

                  Next with no proof of POA as one responded I would show her the door. If she fails to leave have the police escort her out. Do not negotiate with her, with out a POA she has no power to negotiate and anything you do agree to with her could only come back to bite you.

                  Secondly get all employes ( by way of a called meeting) togather and explain your plan of action. Informed employees are often content employes. This will create an atmosphere of trust between you and your employees, of which it sounds as if you need @ present.

                  Consult a good ( business, corperate attorney, that is trustworthey) and let him give you several options as to what is available to you however he probably won't know every option.

                  it sounds as if the business is doing well enough to form some structured settlement but it must made with the legal partner you have in the business.

                  The operating agreement referenced by kushik is very important, however it sounds as if that was probably skipped in the orig. start up of the business.

                  One piece of advice that everyone seams to offer is to consult your CPA, WRONG, do not consult your CPA for business advice. the vast majority of CPA's are not qualified to give you good sound business advice. Most are terrible business people, and what ever you do don't consult your banker. The same applies here.

                  You should understand you business better than anyone, thus strucure a buyout around the available cash and projected cash flow of the business.

                  With a good attorney and your own knowledge normally you can arive at a reasonable buyout.

                  If terms cannot be reached, contact me through this site and I will be happy to walk you through other

                  options.

                    • Re: Needing to buy out my partner (65k) to get my business back
                      Guide

                      Hi Larry,

                       

                      I am curious. When you refer to an accountant, are you  talking about the type of accountant that only deals with taxes? Like the kind that would work for an H&R Block? In that case, I totally agree with you about not contacting an accountant for business advice. What would they know about running a business? Not only do they work for someone else but their scope of work is very limited.

                       

                      One would hope that when starting a business, you would find an accountant that is very knowledgeable in all aspects and winds up growing with your company. This situation unfortunately, is not new. I see and hear this type of problem all the time. The biggest concern is that when this type of business first starts out, no one (possibly the accountant as well) ever brings up the topic of partners disagreeing down the road (its an uncomfortable situation). As

                        • Re: Needing to buy out my partner (65k) to get my business back
                          larry Wayfarer

                          Melinda you are a bright Lady. Most people starting out (first time business) think that everyone with a shingle over the door is a CPA. I have a bit of heartburn with most CPA'S from the standpoint that by in large they are trained tax collectors.I have found a few ( very few) that can truly grasp the eb & flow of a complete business plan and the execution thereof. Maybe better stated they don't spend the time to understand.

                          Thus it is essential that a business owner educate them ( as you stated) from the beginning and stay on top of it themselves .It is also critical  that one choose a CPA with a background in their particular field of business.

                          Conducting business or running a business can be done successfully in many different ways and most trained CPA'S are guilty of cookie cutter mindsets or a fit all mentality.

                          I have always chosen to establish the guidelines and let a CPA tweek my plan. As you know all too well I am sure, no one will put the energy and effort into the business that one with skin in the game will.

                          The individual in question here has many options. He will  just need to take the time to discover them, weigh each one and select the modle that fits best for Him.

                          Often we all get caught up in our emotions in leau of sound business thinking and as a result make costley decissions that can create failure. Partnerships ( in their true form 50/50) is not a desirable makeup in most business settings....ie this particular one. Most start as two friends with an ambition to excell and work together in the beginning, only to find out down the road that egos, work ethics and greed has not been an origonal thought in the equation.

                          In Trevor's case there are several easy, simple solutions to get things moving in a positive direction.  I  choose not to discuss those here, but to a seasoned business owner several options would be obvious.

                          One last thought, in business  most can't master the consept that  we do not ( in general) go into business to inhance a relationship with our partner, Rather it is for the purpose of profit.

                          It is great to have a good relationship with a partner but not necessary. I have had a few partners over the years that after forging the partnership I found our personalities not very compatable. Focusing on the end goal then becomes paramount.

                           

                          Larry

                      • Re: Needing to buy out my partner (65k) to get my business back
                        koln123 Tracker

                        Stay focused on your only main goals.  To keep running the business, preferably by yourself and to get her out of it.   She may not have any or few rights but if you suddenly lower the boom one day and it gets emotional,  of course she'll tell her husband you are the Evil doer and demand he do things that may hurt you.  I also suggest you discuss this with a business attorney and an accountant.  It'll be worth a few hundred bucks.   It seems a reminder to her that you are 50% didn't take place when she came in aggressively?   It would find out what you can do from the Attorneys as a back up.   Then have a talk with her how, remember, this is a 50 / 50 set up, not a Sole Prop and we need to get back to a reasonable work flow that way.    If she isn't reasonable, be ready with a back statement based on what the Attorneys advise.  Meaning, based on a Partnership.   In the meantime I would look for a different partner to buy her out.   Right now it sounds like a bad set up.  Good Luck SBLD

                        • Re: Needing to buy out my partner (65k) to get my business back
                          Guide

                          Trevor, there is a lot of good advice listed. Please let us know which avenue you took and how you are doing. I hope that what started out as a successful business venture and turned a little sour, will soon be once again a great business for you. We all take our lumps along the way and manage to benefit from our many mistakes. There isn't one successful business man who hasn't been in your shoes at one point in time. Keep it up and know that we are all in your corner.

                           

                          Melinda