Buying out a Business Partner?

[DaneMcCloud]

Hiring a CPA to "go over the books" is meaningless.

What you need is a valuation of the business. It doesn't matter if they put $100k into the business if it's worth $5k.

Good luck!

[Saul Good]

Originally Posted by DaneMcCloud

Hiring a CPA to "go over the book" is meaningless.

What you need is a valuation of the business. It doesn't matter if they put $100k into the business if it's worth $5k.

Good luck!

Agreed. As you're describing it, "buying them out" sounds like paying them to go away. That isn't worth anything.

[Hoover]

Option 4: Tell them to F off, end the lease and open under a new name.

Seriously, she's a book keeper and store manager.

[Saul Good]

Originally Posted by Hoover

Option 4: Tell them to F off, end the lease and open under a new name.

Seriously, she's a book keeper and store manager.

Yep. There's a word for what she is doing. It's called "quitting".

[Jenson71]

Originally Posted by Saul Good

Yep. There's a word for what she is doing. It's called "quitting".

Quitting Advantage Plan. All the benefits of quitting, plus no monetary loss. Partner seems to want a pretty nice bailout.

[Ebolapox]

how much does she value the friendship? because honestly, she's owed almost nothing as far as I'm concerned--if you want to be on the up and up and maintain what's still there, get the business valued and offer her half of the value. otherwise, hoover's solution is what I would do.

[Dave Lane]

Here's the deal. If you think the business is priced to high simply say, "we accept your offer, and a check would be fine."

Once they see they might have to pay you they will happily tell you that the business isn't worth it and you can tell them you are just trying to be fair since it was what they thought was a fair price.

[Bwana]

Option 3

If she has been cooking the books tell they to walk away, or face legal charges.

[Amnorix]

Originally Posted by NewChief

That's a good point, and we've been told to just go that route (dissolve the business, then reform it as something else under our sole ownership). The main thing we're buying at this point is the brand/identity and, I suppose, the assets in the storefront.

Originally Posted by Bwana

Option 3

If she has been cooking the books tell they to walk away, or face legal charges.

What's the legal charge, really? Are you going to spend money on lawyers? Unless the dollars are truly serious, this is a fairly empty threat.

[Bwana]

Originally Posted by Amnorix

What's the legal charge, really? Are you going to spend money on lawyers? Unless the dollars are truly serious, this is a fairly empty threat.

I would assume that if she has been cooking the books a stealing money that that would be a crime.

[Amnorix]

Originally Posted by Bwana

I would assume that if she has been cooking the books a stealing money that that would be a crime.

Good luck (1) getting the cops interested, and (2) proving it since I imagine the books were poorly maintained, if maintained at all. Maybe in small town America, I dunno, but around here, that won't go anywhere.

[Brock]

They're trying to steal money from you. Don't pay them a goddamn dime.

[Amnorix]

Originally Posted by Brock

They're trying to steal money from you. Don't pay them a goddamn dime.

This is a business decision. While I understand the principles of your reaction, a "goddamn dime" might be well spent. Alot of unknown factors here.

[Amnorix]

First, hard as it is, divorce the emotions from the process.

1. The business does or doesn't have value TO YOU based on its location, the lease, the name, the goodwill of the customers, etc. What THEY put into the business is COMPLETELY IRRELEVANT. If they whine about it, tell them it's just like buying a house -- when you go to sell, nobody cares what the prior owner paid for it.

2. DON'T waste money on a CPA to try to figure out what happened. Whatever has happened has happened. Whatever they did or didn't do in terms of swiping anything is done. If she kept crappy books and no records/receipts, etc., then the CPA is going to be handed a mess, spend a zillion hours figuring out nothing all for what purpose? You won't get a value of the business out of it, and probably won't even know what happened after all that aggravation.

3. One of the few good posts on this thread asked "what are you buying?". That is what you need to look at. Is there a name of the company that is worth anything? A website? A lease? What debts/obligations does the business have? Whatever they are YOU will have sole responsibility for them after this partner gets bought out. Look at what you're getting and be coldly dispassionate about it. What would you pay for it?Think of everything the business has - office space, telephone number, location, signage, customer goodwill, etc. What is that worth to you NOW? Not based on some fantasy of what you hope the business will be in three years. Finally, what would you pay to get this fool partner out of your life hassle-free, if you want to continue the business?

4. Flip side -- what is it worth to the partner to get out of this, if anything? Is she on the hook for half of the rent payments on leased space for five years? Is there a bank loan (unlikely). If she is getting off the hook on anything, that reduces the amount you pay. She wants to move on, and this may hold her back.

5. Consider if/how this business can succeed. There was a plan that originally needed a partner. She failed, but can your wife succeed on her own? Can she do everything she was supposed to do AND everything the partner was supposed to do? Should she cut her losses because it's too much weight for her to carry alone? Can someone else take part of the load as a second-in-command type? What's the plan? You can't figure out what it might be worth if you have no plan going forward.

6. Ultimately, the business is owned 50/50. J Diddy and Saul Good have it about right in terms of just valuing the hard assets. Unless she has leverage on you because she knows you want to continue the business, then all both sides are entitled to is basically liquidation value.

7. If the business was formed as an actual organization (whether corp or LLC), then you need something buying back the ownership interests in the entity. You should also exchange full releases. If it was an informal partnership, then you'll need something else -- an odd asset purchase agreement, dissolution-type thing, dissolving the partnership and putting all assets in your wife's name.

8. Keep in mind tax obligations in connection with all this. Consult with your accountant as necessary.


9. Ultimately, the best bet may be to say something like "hey, look, the business has made no money, has very little goodwill, and very few assets worth anything in a liquidation. I can't spend any serious money on this to keep it going, because I certainly won't get it back and now I need to hire someone to take the job that you were supposed to fill. I'll pay you $X (some number that is near half book value for the assets) for everything, we'll exchange mutual releases and move on with our lives. Otherwise, we can just auction it all off and split the proceeds."

That kind of line may bring reality into sharp focus for them.

I'm glad to answer more questions, including about legal documentation, though I'm traveling this week so my responses will be very spotty.

A business is worth roughly twice its annual profit. If the profit is $30k, by all means give them $15k. Otherwise, they made a bad investment and they should learn from it. They're the ones moving. If they want to stay and work the business into profitability then they should do that. Otherwise they should spend $300 on a community college business course.