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Old 11-26-2012, 10:45 PM  
NewChief NewChief is online now
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Buying out a Business Partner?

Okay,

My wife and her friend went into business together about 6 months ago. My wife supplied the design/buying/art, and the partner was supposed to handle the store front and books.

The partnership has soured (I don't even want to go into it). The partner and her husband are moving to a different town and wanting us to buy them out of the business. They claim that they have $11,000 in it (which we don't believe). We also suspect that there has been quite a bit of freewheeling with the books and her "paying" herself when she claims she hasn't drawn a dime, saying she's only put more and more of her own money into the business (while not documenting the shit in any meaningful way).

She says she wants their money back, and they'll be out. Here's the deal: The business hasn't made a profit yet. We're only 6 month in.

Some options:
1) Pay them and be done, but saddle ourselves with more debt.
2) Try to value the business, looking at assets and such, then decide on a price to pay them.
3) Have a CPA (or someone) go over the books to try to give an accurate picture of what's gone wrong in the first six months. Then tell them to get bent because there was unethical shit occurring.

Other ideas? I'm stressed as hell about this right now, and we plan on hiring a CPA once the partner is gone. The business model is solid, and sales are good. We just suspect that we're not doing well because of poor book keeping and money "leakages." We do feel like the business is a liability, and few investors in a business would expect to be able to get their full money back in 6 months of doing business.
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Old 11-27-2012, 07:51 AM   #46
Iowanian Iowanian is offline
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Quote:
Originally Posted by Saul Good View Post
I will value the brand identity of a sixth month old unprofitable business at $0.25 (give or take $0.25). Figure out what the hard assets are worth and offer half (or less if you want to stick it to them. It's not like they can likely take these assets with them or sell them to someone else for much.)

I agree with this and with Hoover's assessment.

Your wife is the creative talent and the brains of the operation, the other partner is a clerk.
At 6 months, if the store front isn't opened and you don't have brand identity the business isn't worth anything.

That can be very frustrating to hear as a person whom has sunken significant finance, time, heart and soul into a business venture. I was approached about my company a couple of times around my 3rd year and when it came to pricing, the comment was "what is this business worth if you die tomorrow". Were my clients and contracts loyal to ME or to my brand name?

A rough question, but if your wife is the brains and the creative talent, would the business have any wholesale value if something terrible happened to her? Would there be anything more to sell than the office supplies and start up materials?

If so....the value of the business to me is the cost of what those items would bring.


If they're peckerheads about it, shut the door, fire up a new LLC and switch over what you have to that Brand.
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Old 11-27-2012, 07:54 AM   #47
Iowanian Iowanian is offline
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In short, I'd tell the partner to pump aids gas up her hatchet wound and piss on a brush fire.
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Old 11-27-2012, 08:06 AM   #48
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Assets-Liability= What the company is worth if you don't want to liquidate


They are absolute morons if they think they will get the money back that they have put in this early, and since there are two women involved this is going to have several meltdown moments.

I have heard stories that early partnership problems like this have a common theme: The seller thinks they are entitled to getting paid for their time, just like an employee.

Good luck.
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Old 11-27-2012, 08:42 AM   #49
Great Expectations Great Expectations is offline
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If you offer them some money, also offer them the opportunity to purchase the business from you for the same amount.

Are you personally guaranteeing the lease?
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Old 11-27-2012, 08:52 AM   #50
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In short, I'd tell the partner to pump aids gas up her hatchet wound and piss on a brush fire.

"Hatchet Wound"
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Old 11-27-2012, 08:58 AM   #51
the Talking Can the Talking Can is offline
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and don't go into business with friends...
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Old 11-27-2012, 09:05 AM   #52
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What kind of business (LLP, LLC, etc?). Is there an operating agreement with buyout provisions? Before any buyout, I would definitely value the business, assets, etc. She shouldn't be able to get any more out of it than what she can prove she put into it. Sounds like you need a good attorney as well. These types of transactions are part of the types of things that my attorney handles (checking for loopholes, legalities, drawing up contracts and agreements, etc.).
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Old 11-27-2012, 09:08 AM   #53
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In short, I'd tell the partner to pump aids gas up her hatchet wound and piss on a brush fire.
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Old 11-27-2012, 09:19 AM   #54
notorious notorious is offline
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and don't go into business with friends...
This.


Especially if there are two females involved.
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Old 11-27-2012, 09:30 AM   #55
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If you suspect "freewheeling with the books" then you would be better off terminating this business and starting fresh. Business entities need to be separate from personal holdings- this is what protects your stuff in the case of audit or litigation. I wouldn't want to be the only one holding the bag some years from now trying to explain that the freewheeling that occurred with the business I now solely own was not my fault.
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Old 11-27-2012, 09:38 AM   #56
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Option 3


Never go into a partnership with anyone in business... Messy Messy Messy
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Old 11-27-2012, 09:42 AM   #57
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Option 3


Never go into a partnership with anyone in business... Messy Messy Messy
Well, I wouldn't go that far . . .
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Old 11-27-2012, 09:49 AM   #58
Bill Lundberg Bill Lundberg is offline
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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!
Dane is wise. Having been through this myself, he's absolutely correct. Don't forget, you're not only buying their share of the business. You're also buying their share of the debt and liability/risk, it is absolutely crazy to think you can get $ for $ that soon after starting a business.
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Old 11-27-2012, 09:52 AM   #59
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I agree with a lot that has been said already. It's almost laughable that they expect money at this point in the business juncture.
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Old 11-27-2012, 09:55 AM   #60
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and don't go into business with friends...
friends + money = enemies
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