Hi All

Wondering if anyone out there has taken on a business partner?

I have recently offered a partnership to a sub-contractor who generally works for me 2 days a week and hires hourly factory time from me at other times.

It's seeming to be an incredibly complex undertaking and to be honest I'm losing interest in the deal due to lack of effort from the other side.

Here are the basic setups:

Me
- pty. ltd. company
- about $700k turnover this year
- Myself & 2 x full time qualified staff, 1 part time admin assistant
- 9 years in business
- Leased premises
- CNC, Panel Saw, Edgebander, Truck, Van and all the other usual bits and peices stock ect.

Him
- A van
- Power tools

Now I thought this would be a basic case of valuing MY business and offering a buy-in. Assuming our skill sets to be of equal value (this in itself is me not putting any value on my presumed higher level skills, staff management, managing bigger contracts, larger client base, ect ect.)

The process has dragged out. To get things moving I made a one pager, 3 year business plan proposal to gauge his willingness to undertake what I felt is required to get the company to the next level of $2million turnover.
We have finally met up again and there wasn't much response to that, which to me is far more important than what we value the respective companies at.
He has said his business is worth $215k and his takehome wage is about double what I proposed we pay ourselves for those 3 years.

I haven't valued my business beyond estimates and guestimates but when I heard that, I said there is no point even talking about it anymore because my business isn't even worth that amount.
It wouldn't make sense for him to buy in and then take a lower wage and I wouldn't be willing to sell my 50% share for peanuts as it puts no value on the blood sweat and tears....(so many tears :-) that I have put into the business to grow it to this point (and what i beleive to be my higher skill set of which I am trying to ignore!!!!!)

Does this maths seem a little of too anyone else?

chipbored,
His math doesn't seem off if he's taking home more than you are offering (and are quite possibly taking home yourself). Many a shop owner values their equipment and "experience" far greater then it is worth. At the end of the day what you take home in most situations, rightly or wrongly, correctly guages your market worth. Currently he has a lot less liability, combined with more take home. If you are presenting the facts correctly there is a reason he is cool to your proposal, I would be also if you are presenting it straight. And since most people have a tendency to present in their favor it's probable the deal is less favorable to him then presented.

Taken on a partner?

Sort of. Twice. Two different businesses (neither wood-working related.) But, the situations were organic, we started each business together (different businesses, different partners.)

However, I would NEVER do that again. I had to get rid rid of each partner when it became obvious that they were coasting on my efforts. Paying to make someone go away is to be avoided.

There is a huge difference between being able to call your own shots and having to deal with a "partner" who may not share your goals and objectives.

If you go to the time, trouble and effort of laying out a 3-year plan and get any response other than "Yeah, I love it and here's some more ideas we might want to consider to make even more" or "I don't like it, but here's how I would get to 2 mill" you're dealing with either a liar or a leaker. Probably both.

From a wood-working standpoint, owning a shop with 700K in sales, some guy with some tools and a van isn't anyone I would even talk about any partnership with. Not even 5%, never mind 50%.

Does this guy have any money to buy any kind of equity stake from you? Whatever he may claim, ask him for his last 3 years of tax returns and a personal balance sheet and tell him you'll give them to your CPA (assuming you have one, if you don't, you should) to decipher and get his written agreement to allow you to do so.

Due diligence, you know? If you don't have a lawyer to do it for you, you have to do it yourself.

Maybe he is making more than you propose to pay, but I doubt it. I'll guess that you would get exactly zero tax returns or any detailed financial information or anything else you might want to see from him.

A business partnership is like a marriage, only worse. Even a 1% owner has legal rights and can tie you in knots if they want to.

My advice? Don't even think about it. If there is any way you can do it, it's best to deal with people like this as a customer, a contractor or a vendor.

ANYTHING other than as a partner. Keep your business life simple. Don't have partners.

Oh yeah, run away from that guy before there is a chance to sign any kind of contract. I had two employees, and the Father of the low skilled kid wanted to come into the business. Within a week we started having issues. About all the new partner did was some machine maintenance, had me bid one job for a friend of his, and his wife took over the bookkeeping. He didn't like the idea of me working an 8 hour day instead of the 12 hour day I had been working. My answer is that's why I wanted a partner. Then he starts talking about working into a direction where his kid takes over his share. It got worse from there. I finally buy him back out for what he bought in with. I fired his kid. I thought I got out pretty cleanly, until I hear from the state. They found out that my sole-proprietorship had turned into an LLC and no one contacted the state about the change. I told them it was back to sole proprietorship. Okay fine, you are a new business and will be paying a far different workman's comp rate as a new business. It cost me thousands over the next few years. Business partnerships can be like a bad marriage, only worse!

rich, we're in complete agreement about the poor prospects for this deal.

However, regarding your comments, you can't magically "turn into an LLC" without an LLC filing with the state. That simply can't happen, absent an explicit filing.

Any given state doesn't "find out" anything without something being filed with the Secretary of (whatever) State. By someone, perhaps your ex-partner. Who claims to be authorized to do so.

You also can't magically turn back into a sole proprietorship without a dissolution of the supposed LLC, filed, once again filed with the state. Never ever happens based on just a verbal say-so by anyone.

Although, if you don't pay the annual fee to the state, a corp or LLC or whatever will expire and cease to legally exist due to non-payment.

In any case, you may not have known what your former partner was up to, but unless he owned more than 50% (which I doubt) he had no right to make any state filing at all without your agreement.

This actually sounds more like a hike in state unemployment insurance (tax) rates, which can be huge, if they throw out your good history.

You were certainly not a new business, just the same old business it always was, and the state, regardless of filings had no basis to increase your UI rates outside of the very weak tea of a change in the form of the organization.

I doubt any private insurance underwriter of WC would pay any attention to this at all. They only care about actual history.

It appears that you got screwed over by your ex-partner long after you paid the sorry excuse for a human being to go away.

An illustration of how long and expensive the bad effects of a bad partnership can be.

I'm following this topic with interest. Has anybody on here had a good experience with a business partner ? Is a business partner not a good idea as a rule - or does our more complex industry make it harder to integrate a partner into the day to day?

The only partnerships I have seen work was where the partners were brothers. YMMV

Step 1) Get a buy sell agreement in place and terms for the divorce in writing as well as the valuation method.

Step 2) Get life insurance polices that fund the buy sell agreement over x years.

Step 3) determine who does what and the value

Step 4) determine the value of the hard assets, the intangibles and the existing value of AR and AP as well as backlog and determine when then share starts.

Step 5) determine any outstanding potential liabilities that will now be shared

Step 6). Come up with a business plan and cash flow statements and how its funded.

Step 7) sign the agreements.

Riley, It's my opinion is that it may work in a larger scale operation. But in a small operation, you'll always have conflict. It takes a certain mindset to make thousands of decisions a day in our business. From design, to tooling choice, to engineering on how the piece will be constructed. If there is not a clear delineation on responsibilities, each of those decisions will be open to discussion, or question. We're also an independent lot, based on the spirit to actually open a shop, and who needs another boss looking over their shoulder.

Economics 101, You know, it's likely that I am getting cloudy on details. I closed that full time business after 8 years in 1995. I remained a professional woodworker for another 15 years, but as an employee. It seems that only the pain of my decision remains clearly in my aging memory!

I agree with Rich. I had a partner for 7 years. It just came down to communication and different views on the business. We were a three man shop including myself and partner. We did incorporate right away and had a written agreement 50/50 in writing per attorney. This made it a lot easier when it came to split. All assets were divided down the middle. Hind sight 23 years ago I wish we would had a better business plan detailing each others responsibilities. He was a great job coordinator and I was really good in the shop. Lack of communication was our biggest down fall.

Best of luck

quit wasting your time

most successful businesses run with a single voice in charge for a reason

If you need help get it and make damn sure you are delegating out properly, check their work and correct as neccessary

Don't!

I had actually worked on a construction crew and that company had 2 owners. From what I saw they were stronger as a team. However that is a different industry so it may have been easier to divide responsibility. And we as employees probably didn't hear about their differences.

It's seeming to be an incredibly complex undertaking and to be honest I'm losing interest in the deal due to lack of effort from the other side.

This is your answer right there. Run from this! If he won’t put in effort to become a partner, he will never put in effort when he is a partner.

Two times and never again. If you do it either keep 51% so you maintain control or do a Chinese buy/sell which is a contract clause to force one of the partners to sell out or buy you out. Is he giving you cash for his 50%? Either way I would never take on a partner.

Thankyou to everyone for your responses.

After reading all these responses and the continued lack of effort from said prospect. I'm very glad I didn't rush into anything.

Once I could put closure on that possibility and move beyond it I have been inspired to continue on my own and move things forward.

I am at a very difficult stage. 2 qualified tradesmen and myself and sub-contractor 2 days a week.
Every time I hire a third tradesman I find it very difficult to keep the work coming to them and do all the day to day management/sales/detailing ect.

I hired an installer a while ago and that didn't end well. It seems like factory guys DO NOT wan't to go out on site, they like the cosy little factory, and installers don't want to be in the factory, they just winge and are ineffective until they are sent back out on site, but being a small shop I don't have enough work to have installer out every day.

My next logical move is to get a detailer to design and prepare machining. This is difficult in my area. Very expensive, I would need to pay much more than I pay myself and from what I hear from others in the area I shouldn't expect the level of work that I can output.

So I feel a bit stuck at the moment.

I would be happy to continue with installs or the detailing but to move forward I need to give one up.

Giving up one or the other?? Install takes you away from the shop and is easier to outsource. You could try training a person to do the design/detailing, CAD CAM. It will require basic shop experience and developing a systems approach based on your shop methods. Try to reduce the number of variables to simplify the system. It will be easier to train someone that way. You can't do everything to run a larger business. If you develop a good system and get the concepts in written form, you won't need to micro-manage others. I've hired guys from vocational schools but found what they had learned in 2 years could be un-taught and corrected in less than 2 months. It's about motivation.