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  • Looking for Suggestions on selling Partnership

    updated 1 year ago 0 Member · 1 Post
  • Margaret

    Member
    August 28, 2021 at 8:53 am

    Hey Ladies and Gents, Hoping to find some out of the box thinking with you. I got the following situation: Some Stats: Started in 2018 Built a business with 3 friends and formed an LLC; each with 25% stake of initial investment ($3.000) –> Total 12k for Initial startup Business has been growing steadily – flattened during 2020/21. Hitting limit of the business, unless we expand in location and increase staff. Initial 4 owners are not getting paid from this business; no Revenue sharing; no salary. All are doing it for the initial idea. Business is for all 4 a second job. Currently, we are using revenue to pay the staff, credit, standard overhead costs, inventory which we are selling on site, save up for expansion, new onsite equipment. We took up a 100k loan. Currently paid off 40k. Remaining 60k. Business has about $±50.000 in inventory, plus recurring memberships for various run-times of 1mo –> 12 months. Effort: Not all of us are putting in the same effort. Business is split among us four with split responsibilities. Owner S: Finance & Tax / Purchasing / Business Expansion | 30% Effort Owner V: HR / Operations | 30% Effort Owner T: Small part of Operations | 10% Effort Myself: Marketing / Sales / Operations / Purchasing / Site-Maintenance | 30% Effort Offer to add a 5th We had one staff member, who has been pushing more than the rest of the staff. So the 4 of us wanted to include him in the ownership and each of us gifted 2.5% to him in voting rights. However, due to one (Owner-T) of the initial 4, a provision was added, so that if he wanted to sell out over the next few years, he could only sell out, for 10% of what the business grew from entry –> date of selling his ownership. His Feedback/Thoughts He is “in” either way, but obviously is looking for more of an investment as he wants to be part of it and be fully vested. He is making valid points and I totally can understand his point of view. However, I am not sure how to proceed, as you can see in the next few points. It’s just a Virtual Business Partnership, he still supplies all his work and service, while actually not gaining much more than that With 10% voting rights, he is not fully in and at any point could be overruled; so what’s the point. If he ends up selling, what’s it worth to him? Hypothetical: 80k today; 100k at time of selling = 10% of 20k. He appreciates the offer and is very thankful He wants to join, even if he has to pay his 10% entry fee from 2018 ($1.200) Additional Insights to the Business today & Partner Thoughts I talked this through with one of the others (Owner-S), and we agree, we would be fine with his idea. However, we see potential issues with Owner-T who is concerned as he himself is currently thinking about quitting. Our initial idea of gifting 2.5% / Total of 10% was to gift the inclusion in the owner group as a thank you for the work he put it. 10% voting rights + continued salary payments + further education funding + 10% of business worth increase as Bonus. Options: Buy in at 2018 Rate of 10% investment does not account for the initial risk of starting the business Two of us are okay with this idea. Owner-V is indifferent. Owner-T is against this as it’s not fair for him He put in a lot of work to operate the business. However, it’s nowhere close to what Owner-S and I put into it. Yet, we see the potential he would add to the group dynamic, not the loss of money that would come from it. He could buy in for 10% of the value today this would account for the risk potentially off the table for him (New Owner) Partnership buy in no experience in this. What are even the options? Any Price we set here, will be guidance for Owner-T to sell out and get out at the same rate of 22.5% Owner T is not ready to sell at this point, but is considering the idea; is also not willing to sell his 22.5% to a New Owner at this time, as the valuation of the business is down due to corona Personal thoughts: Have new Owner buy out Owner-T, as he is not fully vested anyway, doesn’t do the work and wants out anyway May be too expansive for New-Owner Owner-T refuses Have New-Owner buy in at 20% of Business Value to get equal share. Invest Buy-In to cover buy out of Owner-T once it’s time (otherwise would have to take on a credit to cover the buy out) He pays in for the 10%, but at what rate? A calculated one? The $1,200 from 2018? A separate Partnership Entry Fee (like in Law Offices)? What added constraints should there be added? Can’t leave for a set amount of time, none compete clause, etc. Conclusion So here I am, thinking about what else I am missing for options. I feel like I am standing to close to the problem. Hence, why I am looking for some recommendations. I am sure I am missing out some details which are relevant for you, so I will post them as the inquiries come in. Looking forward to some brainstorming. Obviously, will keep you guys in the loop. Thanks in advance, and thank you for taking the time to even read this! -SD – by /hq/SirDudes – –

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