QUESTION.
Our busness has been up and running for 3 years. We are starting to be profitable. Two of the four partners aren’t pulling there weight. We need someone to sit with us to explain if we should all go forward or just 2 of us should buy the other partners out. And if so, then what is a fair price?
RESPONSE.
Your email includes a sad story. Sorry to hear it. However, maybe it is not as bad as you describe? Partnerships can be set up so owners can be either “just owners” or they can be combination “owner-employees.” Owners typically share in the profits of the partnership after all expenses of running the business are paid. Employee salaries are an expense of the business.
The simple solution to your problem is to treat the two “partners pulling their weight” as owner-employees. They get paid what they are worth in the form of salary, and the profits that are left over after paying the salaries are split among the partners according the terms of the partnership agreement.
Of course, you can dissolve the partnership and let the partners go their separate ways and start up similar businesses elsewhere. Normally the partners who pulled their weight will be able to start a business in a flash since they have the customer loyalties. The lazy partners are out in the cold where they should be since they were not building customer relations.
As an alternative, you could hire an accounting firm to put a value on your partnership so there can be a buy-out. I don’t recommend that option. You won’t be happy with the report the accounting firm prepares. And you won’t be happy with the resulting invoice for services rendered, either. You will feel like you are going through a divorce – and there are no winners in a divorce usually.
If you all are on speaking terms, then suggest the four of you schedule a face-to-face counseling session with your local SCORE chapter. Two volunteers counselors will meet with you all for an hour and discuss your options. It’s free. See http://www.score.org/findscore/chapter_maps.html and type your home zip code in the appropriate slot.
I hope my comments have been helpful. Good luck! Regards, -Jeff
Jeff Lippincott
SCORE.org Counselor
Princeton, NJ
scoreprinceton @ aol.com
www.scoreprinceton.org
www.jlippin.com
