4 Common Pitfalls To Avoid When Buying Out A Business Partner

Have you had a falling out with a business partner? Are you considering moving forward with your company on your own? Buying out a business partner can be quite the challenge. It often involves complex negotiations and financial considerations, not to mention, emotional dynamics. It’s a process that can easily go awry if not handled carefully.

Here are four common pitfalls to avoid when buying out a business partner:

1. Failing to communicate effectively.

Effective communication is vital in any business partnership. However, it becomes even more critical during a buyout. Misunderstandings, misaligned expectations and a lack of transparency can lead to disputes and impede progress. Business owners should openly discuss their intentions, concerns and expectations throughout the buyout process. This will foster an environment of trust and cooperation.

“I get calls from business owners who say ‘I want to buy out my partner’ and I ask ‘Have you talked to your partner about it?’ and they say ‘no’,” divulges Paul Wormley on Divestopedia.com, “I think that, unfortunately, is probably the number one most common issue that I see when talking to business owners about wanting to buy out a partner.”

2. Underestimating the value of the business.

Determining the value of the business is often a stumbling block in partner buyouts. Underestimating or overestimating the business’ worth can lead to disputes and strained negotiations. It’s essential to employ a fair and transparent valuation method. Hire a professional appraiser to ensure both parties are on the same page regarding the company’s value.

“An independent valuation gives partners a more accurate picture of cash flows, risks, liabilities, and growth, all of the things that factor into the overall value of the enterprise,” informs Saratoga Investment Corp., “An independent valuation will eliminate guesswork and typically smooth out negotiations. It will also ensure fairness and reveal any liabilities that might yet be discovered.”

3. Rushing the process.

It’s important to keep in mind that the buyout process can be lengthy and complex. Rushing through negotiations and decisions can lead to costly mistakes. Take your time to thoroughly evaluate the terms, ensure both parties are satisfied and review all legal documentation carefully. Patience and thoroughness can save you from making hasty decisions that you may later regret.

“In most cases, the businesses these partners have were built over decades and you’re not going to unwind that partnership in months,” writes Wormley, “Typically when I’m talking to business owners that are seeking a buyout of their partner I say ‘Plan on a year, maybe more, if you’re starting flat-footed’. It’s not something that you can affect and do it correctly in months.”

4. Not looking into alternative funding.

Buying out a business partner doesn’t come cheap. However, “buying partners can get a merchant cash advance to pay a lump sum to the selling partner,” enlightens Saratoga Investment Corp., “The borrower repays the (advance) using a percentage of their company’s income. Most borrowers don’t have to wait more than a few days to get approval.”

At Synergy Merchants, we have a long history of helping business professionals to afford buying out their business partners. With our unique merchant cash advance program, you can actually receive funding within 24 hours! To learn all about it, please don’t hesitate to call us at 1-877-718-2026 or email us at info@synergymerchants.com. You can also apply online for a free, no obligation quote!