3 Mistakes To Avoid When Buying Out Your Business Partner

You’ve come a long way as a business owner who is part of a partnership. But now, you’re thinking it’s time for a change. How do you go about transitioning your brand into a sole proprietorship? Buying out a business partner can be a complex and emotional process. It involves legal, financial and personal considerations that can easily lead to mistakes if not approached carefully.

Here are three mistakes to avoid when buying out your business partner:

1. Not getting legal and financial advice.

Don’t try to handle the buyout without seeking professional advice. Legal and financial experts can help you understand the implications of the buyout. They can draft the necessary documents and ensure that the transaction is conducted properly. Failing to seek their guidance can result in costly mistakes and legal issues down the road.

“Seeking legal advice and setting your partnership up correctly will help mitigate relationship tension that could harm your business,” says Leanne Armstrong of SLC Bookkeeping, “While many aspiring entrepreneurs choose to put their limited capital toward marketing and product development, the fact is that investing in legal expertise can save you and your partner significant stress and money down the road.”

2. Overlooking appropriate valuation procedures.

What is the value of your business? This is important to agree upon as it will determine the value of your partner’s share of the company. Many business owners make the mistake of relying on inaccurate or outdated valuation methods. It’s important to use a fair and objective approach to determine the value of the company. Hire a professional appraiser or use a valuation formula agreed upon in advance.

“There’s no set rule for establishing the value of a business,” reveals ProjectionHub co-founder, Adam Hoeksema, “You may want to add up all the assets and factor in the cost of replacing all the things your partner will be taking with them…A business appraiser can help with this…Some businesses pay for more than one appraisal, and others get one even if all parties agree on the value of the company, to help prevent changes in attitudes later on.”

3. Failing to get the buyout agreement in writing.

Naturally, a buyout can have long-term implications for your business. You have to consider its financial health, operational efficiency and overall success. Be sure to not focus solely on the short-term goals of the buyout, such as gaining full control of the business. Consider the long-term impact of the buyout and ensure that it aligns with your strategic objectives for the business. Finally, be sure to get the final buyout agreement in writing.

“The terms of the operating agreement contain a buyout clause – a provision outlining each partner’s shares and how to distribute them,” explains Keith Rabkin of PandaDoc, “The buyout clause also mentions withdrawal events, payment terms, and eligible buyers…If the partners don’t have a buyout agreement — or one party refuses to honor the terms of the agreement — they might end up in a protracted legal battle, which often leads to one person feeling aggrieved.”

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!