Buying Out a Business Partner
There could be a hundred reasons that could lead to a partner buyout. Ample care and consideration should be given to the partner’s worth for a smooth buy out process. If there is a written, formal agreement with all buy out cases and circumstances clearly mentioned, consider yourself lucky. If the partners fail to go for a formal written agreements at business start up or inclusion of a partner (a very common mistake), partner buyouts may become quiet complex.
Guidelines for Smooth Partner Buy Out
The following guidelines should ensure a smooth transition for a partner buyout process.
Guideline Number 1: Determine the worth of the partner.
The first step for a business partner buy out is to determine the value of the business partner. This is most important as you need to know what all assets in the company belong to the partner and what could be the possible impact of the partner buyout on the overall business. The assets under consideration should also include the goodwill related to the partner in question.
Guideline Number 2: The goals and targets of the partnership buyout.
This is a very important step that needs to be carried out with lot of care. Before the partner buyout process, a clear outline needs to be drawn to confirm what you are looking for and what can be offered to the other partner through the buyout process. This step can be made little easier if a professional attorney is hired. You will need to consider:
- The type of buyout you are considering: whether the partner would cash in completely or retain some rights in the business; and
- The amount of money required for the buyout;
Guideline Number 3: The importance of a third party involvement
Third party involvement in a partner buyout is very important in a partnership business. This is because all partners have invested plenty of energy, emotions, time, hard work, and money in the business. Buying out a partner could actually turn into a battle. A third person, preferably an attorney, should be appointed to sort out any possible differences.
Guideline number 4: Secure the financing
It is important to access and make sure that the partnership business has enough financial means to finance the partner buyout. If enough funds are not available, the partnership business would have to get a business loan, leverage the businesses receivables income by factoring the receivables, getting a merchant cash advance, or even using auctions to raise funds. Most partner buyout contracts require remaining partners to be responsible for the business loans, payments, and expenses.
Once the process is closed, it is advisable to document all the lessons that were learned during the transition and apply it to the next partner buy out - if needed. The above mentioned guidelines are areas where mistakes commonly occur in a partnership structure.
This post is part of the series: Building your Business
This article series aims to help you with information on activities related to business management. The information includes fast strategies to promote your business, dealing with business partners, and debts etc. If you need more help on business management, feel free to contact us.