Adding another partner

Discussion in 'Business Operations' started by jrmyj, Aug 3, 2010.

  1. jrmyj

    jrmyj LawnSite Member
    Messages: 52

    I have a partner now and believe it or not we have a great business relationship and are still best friends although we are total oppisites. But when we started that business we did just as a part time gig and its grown really fast over the last 3 years to the point that neither of us has the time to put into it to make it grow even larger. We both have full time jobs and while running the business. I have a very good friend that has been doing high end landscaping for the last 11 years that has agreed to come aboard to help grow the landscaping side of the company. We are paying him a good salary but he has a lot of contacts on that side and within a few days he has landed us 6 landscaping jobs. When we brought him on we agreed that he would have a buy in option but thats where I have a problem. I have no idea how to allow him to buy in. He doesn't have the money to buy in but is willing to purchase any equipment we need through his family members. His contacts and knoweldge are very valuable ao we don't want to loose him not to mention having him handle the day to day operations is key to free us up. Whats a good option to bring him on. Thanks for the help and sorry its so wordy.
  2. lawnguy224

    lawnguy224 LawnSite Member
    Messages: 94

    I am in a similar position to you and am having difficulty coming up with a solution
  3. wbw

    wbw LawnSite Fanatic
    Messages: 5,933

    The easiest way is to set a value for the business. We will say it is worth $100 Your share is worth fifty dollars and your current partners share is worth fifty dollars. If the new guy contributes fifty dollars then you would all have an equal share. So far so good. Except the new guy doesn't have fifty dollars.

    The business loans the new guy fifty dollars and he pays for his share. He now owes the business fifty dollars. You should charge him 5% interest on this loan. The loan should be repaid over 60 months out of his check or bonus or dividends.

    IMO I would immediately if not sooner do two things...

    1) Incorporate for everyone's protection

    2) Write a buy sell agreement while you are all still friends.

    Good partnerships can be wonderful and bad partnerships can be hell.

    A partnership is like a marriage on steroids. Best of luck to the three of you.
  4. lawnguy224

    lawnguy224 LawnSite Member
    Messages: 94

    thanks for the advice!!
  5. seabee24

    seabee24 LawnSite Senior Member
    Messages: 619

    sounds like a good method. problem might be getting everyone to agree on the price. and if the new guy doesnt want to buy in, then just pay him his salary, and maybe a bonus for bringing in new work. but then he doesnt get to share in the problems or glories either
  6. MarkintheGarden

    MarkintheGarden LawnSite Bronze Member
    Messages: 1,130

    Write up a letter of intent to incorporate.
    Write up a partnership agreement.
    Both of these documents do not need to be written by an attorney, but that would be a good idea.
    What is most important is that all parties understand the partnership agreement, and that it is detailed enough to consider all likely situations.
    The value of a partnership agreement is that it provides everyone with a solid understanding of what they can expect.
    When it comes to putting a price on the business it is important to use a formula so that you can use the same formula when it comes time to buy a partner out or add another partner. A good formula to use might be: The resale value of all material assets (property, equipment and materials) and fifty percent of the last years net revenue.
    A partner who does not have cash to buy in can buy in by trading salary or bonus.
    Charging a percentage and loaning the cost of the partners share is a good option as someone else has suggested. Another option is that the would be partner is not a full partner until he has paid in.

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