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View Full Version : Buying out initial partner- need "word problems" to define terms



BrandiSchoen
09-08-2016, 01:16 AM
Hi, Hope this is in the right forum.

I am part of a small 3 person company (including myself!) that is growing like crazy.

One of the founding partners cannot deal with any risk or liabilities and wants out. The remaining partner and I are trying to hash out a buyout deal with her.

The main sticking point is that she wants 2% of sales for the next year. We are offering 4% of revenue after costs.

I need some verbiage (story problems) to help explain to her why her 2% of sales demand is bad for the company.

Background: this is a generous offer, because the 2 partners are brother and sister. So far, it has been amiable, but this is the point we cannot seem to explain to her. Also, I barely have a grasp on this myself...I am the production manager, not the great business mind behind it all. Also, for the last 2 years, we netted about $20K, so...not a ton of cash here!

All help is appreciated.

Owen
09-08-2016, 01:58 AM
Hi, Hope this is in the right forum.

I am part of a small 3 person company (including myself!) that is growing like crazy.

One of the founding partners cannot deal with any risk or liabilities and wants out. The remaining partner and I are trying to hash out a buyout deal with her.

The main sticking point is that she wants 2% of sales for the next year. We are offering 4% of revenue after costs.

I need some verbiage (story problems) to help explain to her why her 2% of sales demand is bad for the company.

Background: this is a generous offer, because the 2 partners are brother and sister. So far, it has been amiable, but this is the point we cannot seem to explain to her. Also, I barely have a grasp on this myself...I am the production manager, not the great business mind behind it all. Also, for the last 2 years, we netted about $20K, so...not a ton of cash here!

All help is appreciated.

Has she invested any money into the company? If not she doesn't even need anything. She did nothing.

tallen
09-08-2016, 05:27 AM
Whether 2% of gross or 4% of net is a better deal (for whomever), or "bad for the company," depends on what your margins are.

If your costs account for more than 50% of your gross sales, then 2% of gross is better for her.

Example, you sell $60K, and your costs are $40K (67%) leaving you a net of $20K (margin = 33%), under the 2% of gross, she would get $1,200 versus the $800 she would receive at 4% of net.

On the other hand, if you only sell $30K, but your costs are only $10K (33%), leaving you with the same net of $20K (margin = 67%), under the 2% of gross she would get only $600 vs. the $800 she would be due at 4% of net.