Buying out a business partner can be an intimidating venture, sometimes a messy one. However, when both parties are aware of the situation, and both parties mutually understand the process as well as the value of the company – it can be much easier.
We have identified 5 tips to make the buying out a business partner a smooth process for both parties.
Tip 1: Make Sure To Get A Buy/Sell Agreement In Place
Make sure up front when the company is started or as soon as you read this to get a buy/sell agreement in place. This is a legally binding document between the owners of the company. This document agrees to certain parameters if something should happen to one of the owners, such as: death, disability, divorce, or that they simply disagree and want to leave the company. If you have one of these agreements already – consider yourself lucky! Without a buy-sell agreement the rest of these tips and process might be more challenging.
Tip 2: Be Rational And Realistic
Whether you are the buyer or the seller, this may feel like your “Baby” that you are selling to your other partner…..but it’s NOT. Treat it as you would any other business transaction, keep emotions out of it, or you may find yourself in a dead end where no one can agree. If each person has 10 things they want out of the buy out, getting 6 to 8 of those things may be realistic – but certainly not all 10.
Tip 3: Get A Valuation Of The Company
Do not simply agree on a price as the buyer or the seller. This may lead to hard feelings in the future if the company grows exponentially or if the company fails. Either way the buyer or seller may feel they got the short end of the stick. A valuation will help you agree that someone independent of the company and properly licensed has provided you a fair market value of the company.
Tip 4: Get An Attorney To Draft The Buyout
You want to get an attorney that is familiar with mergers and acquisitions to draft the buyout. Even if the parties agree on all terms, getting it properly and legally documented is critical to the process.
Tip 5: Funding Is Available
There is funding available, it doesn’t have to be out of current cash or future cash flow. The SBA has products available that are fixed term 7-10 year notes at competitive interest rates that allow one partner out in the small business space. This allows the owners to part ways completely and not have to stay in each other’s business because they owe each other money. It provides a cleaner break between the two parties.
LBA Haynes Strand has the experience to provide you the fair market value of your company. Our team of Certified Valuation Analysts (CVA), are well versed in buyout situations and can help both parties seek the proper resolution they deserve. To receive a proposal for the valuation of your business – CLICK HERE – and our team will reach out within 24 hours!