Business Partnership

 
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Old 11-14-2017, 05:36 PM   #21
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Re: Business Partnership


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I would think long and hard about personal character and what you really know about who you are considering working with. One major thing that is a big deal for many people including me about having a partner if they have character:

How many contractors are on here or anywhere know unequivocally that their business would run without a hitch or at least without a hitch that their business could not overcome if they were disabled or injured for 6 months or longer? Heart attack? Stroke? Fall off a ladder? Have a major catastrophe in your personal life or family? I would say maybe 5% of contractors especially in residential could say that, probably closer to 2% just on the sample of people I have met.

People who think that is just for family are not correct in that assumption. From personal experience, the guy who was president of the Builders Association when I was vice president is a partner in a very large luxury home company in Austin. At the age of 42 I believe, right after he took over as president, he had a grand mal seizure and almost died and had to have several surgeries to remove a tumor and was out for almost a year total, at least was not operational for a year. Not only did he still have his company and a job, he was paid the entire time he was down and he received 50% of the profit...

I know for me that helps me sleep easier at night. Definitely have to pick a fighter and a winner for a partner if you are looking for that caliber. Maybe 10% of people would be my high guess. Because it will not be easy for any small or medium-sized company to overcome the loss of half of its upper management and possibly primary Salesforce.

It is not for everyone for sure though, having to grow your company to a size to accommodate two owners and twice as much profit and twice the salary may not be what you are looking for. If you just want to bang Nails all day or run wires then it definitely is not going to be that beneficial in my opinion
All good points Jaws, thank you.

I know that if I were to go down for any reason, my business would not survive very long. If my prospective partner goes down, the business would suffer tremendously but I would hopefully be able to find a replacement. Although, I have been trying to find another man of similar caliber and character for a few years now and have not been successful.

And I don't think it would be hard to accommodate our 2 salaries, being as we do that already. I would just have to get used to splitting the profits (and losses) and be more cognizant of various other expenses that flow through the company which may benefit either of us financially.

It may just be burn out clouding my mind, so I plan on taking a break this December, clearing my mind and giving it some thought and making a decision by January. At least today, I finalized a project/client from hell so one less stressor to deal with.
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Old 11-14-2017, 07:19 PM   #22
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Re: Business Partnership


Going from an existing business and seeing 100% of the profits to a brand new business with shared profits while starting over doesn't make much financial sense IMO. I could be wrong though. Good luck!
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Old 12-19-2017, 10:27 PM   #23
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Re: Business Partnership


How's this going?
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Old 12-20-2017, 07:16 AM   #24
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Re: Business Partnership


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Originally Posted by Jaws View Post
How's this going?
Still contemplating my strategy...my wife and I took the month of December off and are traveling. It's been nice to be away, destress and clear my mind.

Thanks for asking
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Old 12-23-2017, 09:29 AM   #25
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Re: Business Partnership


Everyone on this planet gets tired of dealing with customers, sub contractors, operating costs, government requirements, etc., but taking on a partner actually adds to your problems because you will have a thousand issues to deal with with your partner even if those issues are not direct problems.

You cannot expect that anyone in this world will bear the weight on your shoulders. "If you can't stand the heat then get out of the kitchen" Running a business is not for people who cannot take the pressure. Taking pressure is why business owners are supposed to make more money than owners. Two partners can be "the blind leading the blind" and two people who get to hate each other.

You say that your guy helped you to build your business. Did you pay him throughout this process. If you did then you are even with him and you do not owe him any loyalty for what you paid him for. I suppose we could use a hooker for an analogy for that one. Where does the loyalty part come in when someone is getting paid for their services.

Well, have a nice Christmas, anyway. Christmas is the only day of the year I get to sleep all day, or get to work in my office without being interrupted. The first thing I do on Christmas morning is go outside and look at how clean the air is in Los Angeles due to all the businesses being closed and the empty streets and freeways. The mountains behind Los Angeles are beautiful on Christmas day. I wish I was in Los Angeles 150 years ago to see what it looked like.
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Old 12-27-2017, 04:05 PM   #26
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Re: Business Partnership


You have to be prepared to double your sales volume to make a partnership work.

This is kind of an oversimplification but, if you were a partnership for the past year and he wasn't your salaried employee, take your profit and cut it in half since you will be splitting it with him.

I have seen a couple very successful small businesses go under where they were run by the father, father retires, dies, whatever. Now the kids who were salaried employees under dad take over the business. They both want to be "owners" and collect the profits. Trouble is they haven't increased their sales to support two "owners" collecting that same profit.
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Old 01-07-2018, 06:45 AM   #27
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Re: Business Partnership


Thanks fellas for all the responses. I hope you all enjoyed your holidays and happy new year!

After some contemplation and a discussion with my employee, I opted not to form a partnership. We are going to keep things status quo for the time being, although I may open a separate electrical company as a side venture and see if I can make something out of it for the future.
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Old 03-11-2018, 08:14 PM   #28
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Re: Business Partnership


I'm lucky enough to be involved in a very successful partnership. Your questions and my answers below:


My questions for those of you involved in a successful partnership:

What does your operating agreement look like? What happens if one of you dies or wants out of the partnership?

Very long, large, and complex. Written by someone way smarter than me! It covers everything. I'd suggest paying someone who specializes in this to write the agreement and explain it all to you.

What is the best compensation scheme for us as partners so neither of us feel taken advantage of?

Pay yourselves salaries for the respective jobs that you do. IE- What would it cost the company to hire someone to replace you, and vice versa. The profits are split up and paid out according to your percentage of ownership and how your partnership agreement states.

Any other input or advice is greatly appreciated.

To me, the following is incredibly important, and is why I believe my partnership has survived despite the ups and downs.

1. Only form a partnership if it's 50/50. Similar to a marriage brotha.

2. Make sure you each have buy in/skin in the game. IE- this guy needs to buy into the business based on it's market value. That doesn't mean he needs cash immediately, but it does mean he has to contribute the amount in some way over time.

3. Make sure your partner is your opposite. You must each contribute in totally different ways.
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Old 03-11-2018, 09:20 PM   #29
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Re: Business Partnership


Taking things back a bit...

"What does your operating agreement look like? What happens if one of you dies or wants out of the partnership?

What is the best compensation scheme for us as partners so neither of us feel taken advantage of?

Any other input or advice is greatly appreciated. "


You should be able to find a solid boiler plate operating agreement and buy-sell agreement. You don't need a lawyer to write (read copy and paste) one for you, just have a lawyer review your draft so that you and your partner feel comfortable that an independent, knowledge third party reviewed.

As far as pay, do not confuse distributions and compensation. Owners get paid for what they do day-to-day (i.e - compensation). You can chose to keep all or some of your profits in the business, and distribute the rest among owners. If you form an s corp, any distributions are equal to ownership percentage. With an LLC you can make your own rules as far as distributions are concerned.

One question I have is why on earth would your potential new partner buy into the existing business, especially if you're moving away from GC work, when you're both forming a newco? If you plan on funding the newco with the GC money as you mentioned then determine an equitable ownership stake (not 50/50) if you are the one taking all the risk. Another option would be to stick with the intended 50/50 split, treat the capital investment you'd be making from the GC to the newco as a loan, and pay back the loan over an agreed upon time frame. This doesn't mitigate your risk if the business fails.

Taking on partners can be tricky, but it also a great business growth and employee retention strategy if done correctly. Focus on people who are invaluable to the business who can also help the business grow. Based on the information you shared, this personal certainly seems like the right partner.

I understand the some folks are leery of sharing ownership, its not right for everybody.

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Last edited by Hutch01; 03-11-2018 at 09:29 PM.
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