Being a small business owner means getting the most out of what you have and taking chances on opportunities. Sometimes having a business partner can put a damper on your ambitions because he has equal say in decision making. A way to get through this impasse is to come together and negotiate a partner buyout.
To structure a buyout, you must be vigilant from the beginning and iron out the details in a document. Through multiple drafts, in this document will be the details on how you run your business, make decisions, divide each other’s responsibilities, and most importantly, a dissolution strategy. You want a clean break so there is no room for backlash if things go south when negotiating the buyout.
To ensure you each get a fair share of the business, hire an independent valuation firm for a business valuation. These consultants often value the business by the future expected profits and discount them from the estimated rate of return. However, this can negatively affect your business’s value if the partner you are separating from is the one who is considered to have the expertise or business connections that majorly benefit your business.
When going through this process, you will want to have a mediator and expert in this line of work. An acquisition attorney will help you and your partner go through all the necessary steps without missing anything vital. They check to see if all laws are being followed and that everyone involved understands and agrees to the terms. Doing this on your own can lead to massive headaches and long hours.
Once all of these major steps are concluded, the next major hurdle is finding the financing to pay for it. Since a partner buyout does not translate into new earnings for the company immediately, it can be hard to persuade a lender to give you money for that sole purpose. Working with your business partner is the best way to get your buyout finalized quickly. By structuring a payment plan with an added bonus of additional equity as interest, you can entice your partner to receive his share of the business over a period of time instead of as a lump sum. Again, this can only be achieved if both you and your partner are on agreeable terms.
An alternative form of financing open for partner buyouts is a SBA (7) loan. This is a government backed loan that has benefits such as protections, longer terms, minimized prepayment penalties, and amortization. You can read about it much more in depth here.
In the end, the most important things to do to secure a buyout is to file all the paperwork needed, change your accounts to your business’s name, and clear your former partner’s name from all legal ownership and liabilities.