How does partner buyout financing work?

Business partnership buyouts can happen for various reasons. Buyouts occur when a partner of the business is no longer aligned with the mission or vision of the company or, most commonly, when a partner wants to retire or move on to a new and different business venture. Regardless of the scenario, you can have a successful buyout by covering your bases so aspects are favorable for all partners involved and with the viability of the business in mind.

Agree On the Business’ Valuation

Before making any partnership buyout decisions, all partners involved must agree on the business valuation. Even in circumstances in which the buyout is amicable and in the best interest of all parties involved, things can quickly turn sour when it comes to disputes about buyout details such as:

  1. Fair Price
  2. Division of Assets
  3. Existing Debt

Not all business valuations are black and white. There are outside factors that could potentially impact the valuation of the business. For instance, is your business partner’s industry experience and knowledge vital to your business’ success? Circumstances like this one could have a big impact when valuing your business.

Be Sure the Buyout is the Best Choice

A business buyout can become costly, and the financial return may not always be the best. Before finalizing your buyout, explore the options available to you. In the case that you have a well-written partnership agreement from the start, the dissolution of the business could be simple, allowing you to separate without having to buyout any person.

If you are set on continuing with the business and your partner is not, you can change the weight in the partnership agreement by assuming the majority of the decisions, liabilities, and finances. This will allow you to hold primary control and eliminate some of the expenses of buying out your partner’s equity.

Your options may be limited in the case that your partner strongly refuses to sell his share and your partnership agreement does not clearly define any provisions for ending the partnership.

Hire an Experienced Attorney to Handle the Acquisition

Whether or not the partnership relationship dissolution is amicable, it’s still in everyone’s best interest to hire an acquisitions attorney. The acquisitions attorney will be responsible for leading the partnership buyout negotiations.

The acquisitions attorney will help ensure that the buyout correctly conforms to both local and state laws while still honoring the agreement and that all parties involved clearly understand the terms they are agreeing to. Hiring an attorney may seem costly but it is worth the investment in order to avoid conflicts down the road.

Research Your Partner Buyout Funding Options

In order to buyout a partner, you will need to have the funds to do so. Lenders look for ways the capital from a small business loan will aid in boosting business profits, as the profits will be used to repay the loan. A business buyout does not always create new revenue streams for the business. Therefore, taking the time to find the right loan for you and your business is extremely important.

Finalizing the Partner Buyout

Once the terms have been negotiated and agreed upon by all parties, the buyout is ready to be made official. Your acquisitions attorney can make sure that all necessary paperwork (federal, state, and local) are filed correctly and on time.

The most desired scenario is an amicable buyout, in which all parties agree and are satisfied with the terms. If conflict were to arise, do your best to stay professional. It is your responsibility to keep the business moving forward, regardless of outside circumstances.