Business partner yearns for the golf course
Discussion
50/50 shares.
He's a bit older than me and probs in a position to retire. Recent health scare. I'm not ready to retire yet.
We responded to one of those random 'we have a buyer for your business' letters and went through the motions, they gave us what I felt was an unrealistic (high) offer. But - surprise - don't have an immediate buyer.
A couple of local larger businesses have expressed interest. I don't know them personally to know if I'd want to be in business with them or not. Not got a figure out of them yet.
I was thinking, if Joe Bloggs looks at our books and decides to offer us £100 based on the risks and rewards on the table and thinks he can get his money back in 5 years. Why can't the business (or me personally) get a loan on the same terms to buy my partner out?
Been trading 6 years, couple of employees, we have cash in the bank and no debt except supplier commitments. IT MSP.
He's a bit older than me and probs in a position to retire. Recent health scare. I'm not ready to retire yet.
We responded to one of those random 'we have a buyer for your business' letters and went through the motions, they gave us what I felt was an unrealistic (high) offer. But - surprise - don't have an immediate buyer.
A couple of local larger businesses have expressed interest. I don't know them personally to know if I'd want to be in business with them or not. Not got a figure out of them yet.
I was thinking, if Joe Bloggs looks at our books and decides to offer us £100 based on the risks and rewards on the table and thinks he can get his money back in 5 years. Why can't the business (or me personally) get a loan on the same terms to buy my partner out?
Been trading 6 years, couple of employees, we have cash in the bank and no debt except supplier commitments. IT MSP.
Nicetobenice said:
You could see if he will take the money "on the drip"
A big deposit and then spread the rest, maybe offering a little of the upside if you do particularly well.
That's a fair suggestion cheers. I'd want the agreement water tight so he doesn't see us grow over a few years and want a bigger payday. Also I feel the original business broker guy has put a big number in his head now. I guess we can see what number the local people come up with.A big deposit and then spread the rest, maybe offering a little of the upside if you do particularly well.
buggalugs said:
That's a fair suggestion cheers. I'd want the agreement water tight so he doesn't see us grow over a few years and want a bigger payday. Also I feel the original business broker guy has put a big number in his head now. I guess we can see what number the local people come up with.
Don't forget that, unless your partnership or shareholder agreement says otherwise then you don't have to sell if you don't want to. So that will have an influence on any valuation of his share.You're welcome to send me a DM on this including the offer the other guys presented previously. I can't make any firm commitments as it's not my money but I work with a freelance agreement to a firm that has actual access to capital. They're a bit narrow on the mandate wrt subsector, etc. so I can take a look if it will fit and if so it might be of help to you.
And yes I've seen a buy out many times before; it is an option if it's in your name and all they'll do is have criteria to lend against in terms of LTV and revenue multiples, security, etc.
And yes I've seen a buy out many times before; it is an option if it's in your name and all they'll do is have criteria to lend against in terms of LTV and revenue multiples, security, etc.
A few observations from afar:
Be v. cautious entering into discussions with local trade buyers, particularly if you're not really a seller. Given it's done, however, this may help inform a more realistic value, or that there isn't a trade exit.
That your partner wants to exit and you want to buy him out gives rise to either a conflict or a solution to each party!
E.g. He could take his exit as a CGT, and there's BADR of 18% available as well. This can be structured as a vendor loan note so you don't need to raise all of the money on day one. Also, he doesn't need to fully exit.
In summary, it may be worth speaking to local professional advisers, which clearly isn't this broker.
Be v. cautious entering into discussions with local trade buyers, particularly if you're not really a seller. Given it's done, however, this may help inform a more realistic value, or that there isn't a trade exit.
That your partner wants to exit and you want to buy him out gives rise to either a conflict or a solution to each party!
E.g. He could take his exit as a CGT, and there's BADR of 18% available as well. This can be structured as a vendor loan note so you don't need to raise all of the money on day one. Also, he doesn't need to fully exit.
In summary, it may be worth speaking to local professional advisers, which clearly isn't this broker.
buggalugs said:
Also I feel the original business broker guy has put a big number in his head now. I guess we can see what number the local people come up with.
Been in a similar situation to you and this is the problem. Expectations now may well be beyond what the market is prepared to offer and you get stuck in a doom cycle of whatever he gets offered 'it's never enough' because the guy's mind has dialled into the number that is unachievable.I am in the same sector, we are acquisitive, based across the Midlands, so happy to have an informal chat if you wanted to look at doing something with us or just a feel for the actual value at trade.
I was in a similar situation a few years ago.
Business partner was falling asleep at the desk etc.
I did a staged buyout and it could have been a lot worse but people get funny with money, even when they don't need every penny, and have done well along the ride.
The unrealistically high offer has put you at a disadvantage. You could try your accountant for a valuation.
The lesson anyone going 50/50 in a business should learn is that an agreement should be in place right at the start for what happens if one party wants out, for whatever reason.
Business partner was falling asleep at the desk etc.
I did a staged buyout and it could have been a lot worse but people get funny with money, even when they don't need every penny, and have done well along the ride.
The unrealistically high offer has put you at a disadvantage. You could try your accountant for a valuation.
The lesson anyone going 50/50 in a business should learn is that an agreement should be in place right at the start for what happens if one party wants out, for whatever reason.
The point made above that your parter cannot sell the business without your agreement is an important one. This can and should be used as a reality check for your partner based on their now unrealistic expectation. They need to firmly understand that you don’t want to sell, meaning his shares are worthless and getting his cash out is 100% dependent on doing a reasonable deal with you.
In the meantime if they don’t make an agreement with you to sell their shares you make it clear that you expect them to continue to be 100% committed to the business. Given they are older than you and want out this reality check will begin to focus them on what they want to achieve and when.
There is no rush on your part to do anything which adds further pressure on your partner.
Good luck!
In the meantime if they don’t make an agreement with you to sell their shares you make it clear that you expect them to continue to be 100% committed to the business. Given they are older than you and want out this reality check will begin to focus them on what they want to achieve and when.
There is no rush on your part to do anything which adds further pressure on your partner.
Good luck!
Phil. said:
The point made above that your parter cannot sell the business without your agreement is an important one. This can and should be used as a reality check for your partner based on their now unrealistic expectation. They need to firmly understand that you don t want to sell, meaning his shares are worthless and getting his cash out is 100% dependent on doing a reasonable deal with you.
Yep, this with bells on. 
Was the previous 'high figure' based on a multiple of profits/EBIT? If not, can you calculate what that might be as a multiple?
I would be gently moving towards an MBO/VIMBO - 50% cash now, capped earnout over 3 or 4 years. Or lower cash now, higher earnout later.
Without wanting to be rude, does a 4 man IT MSP have any particular value? Presumably customers can cancel contracts - is there anything that legally or logistically ties them in long-term? Does the firm have a USP?
We sold our firm which had given us a decent living for 20yrs. The company didn’t really have any intrinsic value but it did have a USP. Despite a lot of interest there was only one serious buyer and thankfully they did see it through. Selling was a lot of work - our MD did little else for a year.
We sold our firm which had given us a decent living for 20yrs. The company didn’t really have any intrinsic value but it did have a USP. Despite a lot of interest there was only one serious buyer and thankfully they did see it through. Selling was a lot of work - our MD did little else for a year.
Sheepshanks said:
Without wanting to be rude, does a 4 man IT MSP have any particular value? Presumably customers can cancel contracts - is there anything that legally or logistically ties them in long-term? Does the firm have a USP?
OP should be playing hard-ball by telling the partner that unless he sells for a reasonable amount, then they're off to setup an entirely new business.Gassing Station | Business | Top of Page | What's New | My Stuff