Considering a Cabinetmaker/Builder Partnership
Could it work? Professionals take a hard look at the possibilities. July 24, 2005
Question
I am considering an opportunity to enter into a partnership with a well-established and very successful contractor. He has, for some time, wanted an in-house cabinet and casework division for his company. I have a meeting with him at 10:00 am to discuss this opportunity and I am looking for advice on how best to approach the situation so it would benefit both him and I. I especially would like to hear from others in similar situations about how they structured their agreement or if there are pitfalls that I should be wary of.
Forum Responses
(Business and Management Forum)
From contributor A:
After your meeting, go right to a business lawyer and an accountant. The lawyer to guide you and make a strong business partnership agreement, and the accountant to see if the numbers work. Do not, by any means, be afraid to ask for all business documents and returns. You are investing your cash into a business that will be rightfully yours, at least in part. And yeah, I got burned - I learned the hard way!
One other thing - do a credit check on your future partner, and the corporation. This can be done discreetly. Get his social security number off a tax return and you can get financials from online sources. Do not be afraid to spend some money in your research on professional guidance. It's very short money in the long run.
From contributor R:
A good builder - that is one who is building quality homes - has no time or good reason for an in-house cabinet shop. All too often, the reason is that he doesn't want to pay a good shop what they are worth, so he gets fly by night shops that can't deliver on time, and he complains about the quality. You will be getting half of the profit from a shop that is giving a discount to the co-owner. I would rather see you get your own shop. If the only way you can get that is by hooking up with this builder, then he is going to have too much control. If he's bringing the money to the table and the work, he's going to own you. Tell him to just loan you the startup money, and then you can pay him back with cabinets. If you can get his work and he has plenty of it and is willing to pay you for it, then you can start building cabinets for a low startup cost. You don't have to have nice toys in the beginning.
From contributor J:
Do not go ahead with this partnership scheme. There is a huge hole in the logic of it. Let's suppose he puts up half the money and becomes a half owner. At some point the two partners (you and he) will have to decide how much to charge their customer for their products. Trouble is, one of the partners is also the customer! What crazy kind of situation is that? The reason why he wants you to be a partner and not an employee is because he is going to get his cabinets cheaper that way.
From contributor L:
Since the idea has some attraction to you, I think I would mostly be a listener at your first meeting to see what sort of relationship he has in mind. If you take some notes on the proposed details, you might notice the absence of some details, and you could follow up either at the meeting or with a second discussion. I would not rush into this deal. A partnership in business is a bit like a marriage, and it requires careful thought. To be successful, it will require a good deal of trust. I would ask myself if I think this other fellow is sufficiently trustworthy. While a gut feeling can be correct, I know that a number of builders are less than straightforward with their subs. It is a tough business.
The suggestions of seeking both legal and financial counseling is good advice, but it can wait until you have the details of his proposal.
From contributor Y:
There is a very logical reason why a builder, or any business for that matter, should do things in house. To save money, and have a better product. Is that the motive this builder has? Maybe not. When you outsource, you throw your profits away and make somebody else rich.
From the original questioner:
Your responses opened my eyes to some things I had not really thought about. My meeting went well with the owner, however I am awaiting a proposal from him early next week. This gentleman, I believe, is very trustworthy. I guess "partnership" may have been the wrong word choice. In this situation, I would be an employee manager (with a very comfortable salary) of the division with the opportunity of future ownership. The beauty of this is I am already an employee for someone else, but with absolutely no possibility of ownership. I had my own business at one time but struggled because I had no working capitol. With this opportunity, the money is there to start and operate the business already. The benefit for him is that his investment would lead to shares in the company and as the land owner, he would then lease the building to me once he retires. As I had stated originally, this man is very successful. I believe in the phrase "it takes money to make money." My hope is that I can learn from him and develop this into a very successful endeavor that will someday benefit my family. If anyone still has thoughts, I'm all ears. Thanks again.
From contributor L:
Sounds like a pretty good opportunity, depending upon the details, of course. Once you get it in writing, and assuming you are still excited, that would be a good time to get some legal and accounting advice.
From contributor R:
Salary, employee, manager sounds a lot better than the worst case scenario that I envisioned for you. Best of luck.
From contributor D:
The employment position, of course, is altogether different than partnership. My advice is to always remain the employee and keep your cash in your pocket.
From contributor K:
I was in the same position 8 months ago. I was going to be partner to a contractor who needed a cabinet shop. I worked with him for a few months talking and talking and talking. Finally, I realized that I could be his sub. Turns out he didn't have the financial capability to pay me. But now I own my own cabinet shop and have a few of his customers. I get paid directly from the customers. There is no split to worry about.
