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Kno
Topic Author
Posts: 620
Joined: Mon Aug 15, 2016 10:08 pm

My business partner is buying me out and I'm lost

Fri Sep 10, 2021 5:57 pm

Hi all,

I'd love to hear the insights / feedback of my fellow forum members on a pressing issue I'm dealing with. There is a TLDR version at the bottom for those who don't care to hear the whole story.

So - Frank and I are in our early 30s, we start an event rental company 1 year ago, primarily renting tents, chairs, and tables. Our company takes off last winter / spring for two reasons:

1. I build relationships in the local industry that send us referral jobs
2. I email local schools and offer to distribute tents, chairs and tables to them directly from our wholesaler - this was SIGNIFICANT, as we acquired our first 6 and 5 figure contracts for our services.

Soon business is pouring in and we have more work than we can handle. We quickly become the number 2 event rental company in our area on yelp. Frank handles the inbound calls and social media. I handle logistics, set up, managing new employees. All other aspects of the business we handle together. Thing is, Frank has a bad temper, a fragile ego, really a classic napoleon complex - this is something everyone notices about Frank, not exclusive to my relationship with Frank. I manage this as best I can, but he becomes increasingly disrespectful as we become increasingly more successful. His ego inflates as he handles more and more inbound calls - it creates a complex for him where he irrationally calculates that he is doing the majority of the work, forgetting that it was my initiatives that put us in the position to have inbound business in the first place, forgetting that I am managing our team, our logistics, everything that actually brings our services to physical fruition. After a few arguments that we resolve like gentlemen, we have a few weeks of peace and great success. I receive a ridiculous midnight text from him that he never should have agreed to split the company 50/50 with me, he apologizes the next morning at claims he was drunk and his friend send the text... Seriously? I'm processing that Frank may be to toxic to work with long term, he is always on edge and always needs his ego soothed.

Here is the final straw: A week or two later he asks me to go out for drinks with him, he sees a table in a crowded bar and asks me to save it while he goes to get a drink. He vanishes for 45mins, I text him that I'm taking off and he's welcome to join if he'd like. The Uber picks me up before he responds - and when he responds he is typing in all caps, calling me every name in the book, claiming I left an hour ago, calling my girlfriend ugly, using every 4 letter word in the book, suggesting we meet up and fight. A truly childish and embarrassing melt down that lasted over an hour, all via text - and completely one sided as I did not engage in any foolishness - I told him I needed space and I couldn't work with someone so disrespectful and hateful. He's apologized but I can see that this behavior is so engrained in his personality that it would take years of soul searching and therapy for him to truly change.

After some time apart we both come to the conclusion that he should buy me out - this was about a month ago. We agree to have 2 or 3 CPAs evaluate the company's worth and negotiate from there. He has a CPA buddy from college do it, and send me a ridiculously low ball offer. It's his friend, he's biased, I take it with a grain of salt. Meanwhile my neutral 3rd party CPA has been taking weeks to get back to me and now has Covid - big delay in this whole process. I'm scrambling to find someone else to help evaluate our business and it's a lot harder than I expected - according to my original CPA this should be a straight forward job. We fully own our assets, we have no loans or debt aside from a few family members we owe a fraction of our profits to for helping us start, our only consistent expense is our storage unit, and we are nicely in the green profit wise. Everything is in QuickBooks and we've only existed for a year, so combing through our finances should be simple. I already have an idea of what I think he should pay me, I really just need a cohesive write up from a CPA to present to Frank in negotiations.

So far Frank and I have been gentlemen about this process and I'm letting go of hard feelings, but we both want to wrap up this buyout sooner than later. Frank is indicating that things are going great since I've taken a step back from the business (I'm still involved to an extent, until the buyout is final), however our employees are coming to me, unprompted, and telling me horror stories of disrespect, poor management, and Frank having frequent meltdowns and mishaps. They're planning to quit once I fully leave the company and asking if they can work with me on future endeavors - I emphasize leadership and treating employees they way you'd want to be treated (good pay, getting my hands dirty with them, patience, etc). I think I'd like to use the money to buy property, start a new small business, or buy a small storage unit facility... I'm lost and struggling about what to do with my future.

I'm sorry for being longwinded, but I really wanted to give you all the full picture - after reading this story some of you may have some advice, or guidance, or even similar stories that you'd like to share. I'm open to constructive criticism as well - am I going about this the wrong way? Making any big mistakes? etc....

TLDR version: I need help and guidance in the process of my business partner buying me out, I'm having trouble finding a CPA who can work with me in a reasonable time frame. I'm just looking for a written up business appraisal to begin our negotiations with. I have no experience with this so any thoughts or insights are greatly appreciated.
 
LCDFlight
Posts: 1279
Joined: Wed Jan 01, 2020 9:22 pm

Re: My business partner is buying me out and I'm lost

Fri Sep 10, 2021 7:38 pm

I do know something about toxic people in business. They never change. And they negate all value. From what you wrote, YOU, not the other guy, are creating most of the value. You are showing signs of what it takes to be successful over the long haul. He isn’t. You will likely succeed and he will likely fail. So you have very little to be jealous about. He has all kinds of things to be jealous of you about, which may explain his antics.

Ditch this guy any way you can and be careful about going 50/50 with somebody like that again. IMO. It sounds like you already know this guy is toxic and your future will be brighter without him. It is just about getting the money.

It sounds like there is significant value. Your best source of info is your CPA, so hound that guy for his 2-3 go-to people. If everybody in your city is busy, choose another large city in your state and find a CPA there.
 
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PixelPilot
Posts: 696
Joined: Tue Jan 16, 2018 1:19 am

Re: My business partner is buying me out and I'm lost

Fri Sep 10, 2021 7:45 pm

Make sure you keep every phone number you ever dialed.
If you built relationships with people and they were happy then you bet they will do business with you again.

The only thing I would avoid is to badmouth the business you are leaving.
Make it a case that you can do more instead of i left cause it was toxic.
 
JJJ
Posts: 4116
Joined: Wed May 31, 2006 5:12 pm

Re: My business partner is buying me out and I'm lost

Fri Sep 10, 2021 8:47 pm

If he sends you a very lowball number, offer to buy him out for that amount instead.

If everything is as you say he'll wreck the business in a painfully short time.
 
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Aesma
Posts: 14777
Joined: Sat Nov 14, 2009 6:14 am

Re: My business partner is buying me out and I'm lost

Fri Sep 10, 2021 9:38 pm

Yeah why aren't you the one buying him out ? You don't want to do it alone ?

Doing what you need to escape bad relationships is a good thing is all I can say.

Also, would you sign something along the lines that you will not start another similar company ?
 
LCDFlight
Posts: 1279
Joined: Wed Jan 01, 2020 9:22 pm

Re: My business partner is buying me out and I'm lost

Fri Sep 10, 2021 9:54 pm

JJJ wrote:
If he sends you a very lowball number, offer to buy him out for that amount instead.

If everything is as you say he'll wreck the business in a painfully short time.


Best comment ever.
 
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Dutchy
Posts: 12606
Joined: Sat Nov 03, 2007 1:25 am

Re: My business partner is buying me out and I'm lost

Sat Sep 11, 2021 3:22 pm

I was in kind of a similar situation with my last business partners. That was a 3-way split. Also 2y/o company. A friend of mine, also in the same situation. So it happens more than you think, but still, I feel for you. Sounds to me you were heading to long-term success. Kind of success you can build on. So, no worries, something will come along, I am sure of that!

JJJ wrote:
If he sends you a very lowball number, offer to buy him out for that amount instead.


That is good advice. Perhaps the current employees could also be part-owner. If he doesn't take up the offer then he should rethink the offer because it wasn't serious, if he takes it, then fine, you own the company with quite a discount.

The real value of the company lies in contacts and people, not in assets. And that is a problem for a young company like that. Have you gotten decent earnings yet? Owners tend to invest in the companies development, rather than pay themselves.

So my advice: let someone else do the negotiations. If you are anything like me, then you are too emotionally involved to make a good call. Someone you trust but isn't involved in the situation might be better suited to end it in a satisfying way. Secondly, the first argument you will hear from the other party: there is no money to buy you out, which is fine, you can give him a loan for it, just be aware of two things: interest rates and collateral/some kind of security.

Good luck, and I am sure you will come out on top.
 
avier
Posts: 1316
Joined: Tue Aug 07, 2018 12:38 pm

Re: My business partner is buying me out and I'm lost

Sat Sep 11, 2021 6:10 pm

Seems like you are the soul of your business. By what I mean is, when you pull out of your business, it would most likely collapse under your friend's management of it.
This was a situation in my dad's family business, which was in partnership with his brother and they were in it together for twenty years. My dad was like the soul of that business; he was the one running the show and had all the expertise. So when his brother wanted the business to himself and forced my dad out from it, the business eventually collapsed after huge losses and mismanagement. The only regret my dad had is he was paid a pittance for his share in that business, and it happened so because his brother got the business undervalued by an agent (CPA as you call) and my dad was compelled to accept that offer after much pressure and coercion.

The only advice I can give regarding for your future endeavours is go solo in business. It never really works with any partner. You don't want to be putting your blood and sweat into creating a business only to be kicked out from it later by some other business partner.
 
Kno
Topic Author
Posts: 620
Joined: Mon Aug 15, 2016 10:08 pm

Re: My business partner is buying me out and I'm lost

Mon Sep 13, 2021 5:42 pm

I really appreciate the insights and feedback all around guys! Given the circumstances, word from my employees, and your feedback I am feeling open minded about buying Frank out instead of being bought out. Not sure he'll go for it - but given the price he offered, I'd offer to buy him out at that price.

All in all I'm having a hell of a time figuring out what the real value is. Some CPAs have told me the value is simply the assets and the revenue because we've only been in business for a year (I guess businesses who have more longevity sell for a multiple of the revenue?) --- Logically I would think the value of the business is still greater than our assets and our revenue because I've built an entire infrastructure to make this a well oiled machine. We have a great online reputation, a built website that generates revenue, and relationships - surely that must be worth more than just assets and money made to date? There has to be some dollar value on that, even if its not as high as it would be if we had 3 or 4 years in the game. After all I'm selling my half of the business not liquidating it.

Unfortunately there has been a sudden death on his end and thus the process in resolving this will be further delayed.
 
User avatar
Revelation
Posts: 26759
Joined: Wed Feb 09, 2005 9:37 pm

Re: My business partner is buying me out and I'm lost

Fri Sep 17, 2021 4:17 pm

LCDFlight wrote:
I do know something about toxic people in business. They never change.

I'm an engineer by trade, but was involved in a consulting business for a decade or so, and one of the first things I learned is personal ethics and business ethics are pretty much two different things. People can be really ethical in their personal lives but be total penises in their business life and have no problem reconciling the two. It was really eye opening to me, as a child of middle class wage earning parents.

One case I witnessed: Two brothers I knew were partners in a business that got bought out. One brother felt the older brother failed to live up to agreements and was suing him. I had to listen to this guy talking for hours to his lawyer about the case in very bitter terms since he sat near me. Yet one time the brother called about making plans for Thanksgiving dinner at their mother's house and everything was totally civil. It kinda blew my mind.

Bottom line: It's a jungle out there...

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