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What to Consider When Buying Out a Business Partner
June 19, 2017
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What to Consider When Buying Out a Business Partner

June 19, 2017
Being in a business partnership is a lot like being married. There are good times and bad times, wonderful creations are made and joy is shared with those around you.

With there being over 3.6 million business partnerships in the US at the last count, it is inevitable that some of them will come to an end, either with a feeling of goodwill or in an acrimonious way, just like a marriage. Regardless of the manner of the breakup, if you are considering buying out a business partner, there are a couple of key points you need to keep in mind.

Previous agreements

If the business was originally set-up in the right way, then hopefully, as part of the business partnership agreement there should be a buy-sell agreement in place. This will provide protocols to follow in the event of one partner wanting to leave the business, and this should be your first point of call. However, with many small to medium sized enterprises being formed by friends and family members, a business partnership agreement is not always created as the business is built on mutual trust and respect. In this case, if the business partnership breaks down in a bad way, then things can get nasty.

Determining the value

If one partner wants out, then you need to come up with a value for their share of the business. Valuing a business can be complex, as it is not just the assets, income and liabilities that must be taken into consideration. In addition, you must consider the value of the brand, ‘goodwill’ the business has, future growth potential and any impact the partner leaving will have on the business. This can make valuing the business yourself difficult, so it is always worth obtaining valuations from independent parties.

Keeping the business going

As referenced above, a partner leaving a business could make the business appear more or less valuable. The business partner’s value is normally determined by how active they are in the day-to-day running of the business. If they are very hands-on, then you need to think about how you will fill that void. Will it have a direct impact on sales or will their absence allow you to grow the business in a new direction?  Overall, you’ll have to keep in mind how will you keep the business going in their absence.

Financing the deal

Partner buyout financing can be tricky to obtain in some circumstances if you do not meet all of the lending requirements. However, if the business model stacks up and you get the right advice and guidance by talking to an expert, then you should be able to achieve your goal of buying out a business partner. If you’re serious about assuming full-ownership of your business, partner buyout financing may be a necessary component in the process.

Making it official

Once all the agreements have been put in place, you need to make the buyout official, which involves completing all the necessary paperwork. Your ex-business partner might be a good friend who you have parted with on friendly terms but you do not know what the future holds, so you must have agreements legally signed-off to protect all the parties involved.

It can seem daunting to begin the process of buying out a business partner. Fortunately, if you follow these steps, you’ll be able to make it a stress-free process. Then, you can get back to focusing on the future of your flourishing business!

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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