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    3 Replies Latest reply on Feb 23, 2015 6:11 PM by Moderator Berta

    Establishing the value of a business for sale or partner buyout

    mrolson65 Wayfarer

      I am the co-owner of a small restaurant/bar and bottleshop.  My business partner has had family changes and wants out of the business.  He's willing to sell the business outright, have me buy him out of his half, or have someone else buy out his half of the business. I'd prefer to be able to buy him out but I don't think I'll be able to do that.  We've only been open for a year and a half and I'm still paying off my original bank loan.  The business is very successful we did $700,000 in sales our first year and will improve on that this year (May will be two years). If we decide to try and sell the business how do we value it?  We don't own the real estate only the business.  If someone tries to buy out his half of the business, how do we value that?  Is all of this based on sales figures?  I'd appreciate any help in any aspect of my business dilemma.  Thank you

        • Re: Establishing the value of a business for sale or partner buyout
          Moderator Berta Guide

          Welcome to the community, mrolson65!


          Sounds like you had a great first year! I would suggest checking with a business attorney on how to sell the business, IF that's what you plan to do. Since the business did so well the first year, you may be able to talk to the bank about restructuring your loan so that you can buy out your business partner. Be sure to check all of your available options before giving up on your dream and selling it out to someone else.


          Does anyone else have any suggestions?



          • Re: Establishing the value of a business for sale or partner buyout
            JerryChau Tracker

            Buying out a partner has little to do with so called “value,” an elusive number that experienced appraisers will arrive at vastly different conclusions for a fledgling small business.


            More importantly, both partners need to have gut-wrenching negotiations about how much will satisfy the partner that is leaving the business.


            No doubt the leaving partner will want his investment back plus more dollars based upon future earnings. The staying partner may not even have enough cash on hand to repay the leaving partner’s investment. Therein lies the dilemma.


            If both partners wish to remain friends, I recommend that they seek arbitration from a neutral third party such as from a member of the American Arbitration Association. The goal is to agree upon, 1. an amount to be paid, and 2. how it is to be paid, such as with an earn-out agreement tied to future revenues over time.


            Most importantly, go for a win-win solution. Otherwise, both of you will lose something more valuable than money --- friendship.


              Jerry Chautin
            Former entrepreneur, commercial mortgage banker & business lender
            Currently, commercial real estate & business columnist & content blogger
            SBA's 2006 national "Journalist of the Year" winner