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Thread: Biz partner ready to retire before me. Looking for advice.

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    Default Biz partner ready to retire before me. Looking for advice.

    I have a 50/50 biz partner of 18 years. I am 45 and he is 50. He is financially more ready to retire than I am as his home and all debt is paid. I still have a mortgage. We have a C Corp set up and we own 4 cellular locations as authorized agents for a large cellular provider. We each draw about 175k annually with salary and bonus and have over the last 4 years.

    18 years ago we started out at 30k each with one storefront. We have an ASM that travels to the 4 stores and is basically our COO. He manages each locations managers and staff directly. Currently I handle marketing which has recently been taken over by another agency that does a wonderful job. My partner oversees inventory which amounts to about 500k at any given time, plus or minus 500k depending on the season.

    We are looking at slowly stepping away physically from the business and paying our ASM a larger salary to take over our physical jobs, but we would still be the board and principal officers, but physically much less involved so that we can move on into other business ventures to provide retirement income. Having a mortgage, I am in more need of a full time gig, than my partner. I am going to be taking my real estate exams to pursue this field for retirement.

    My thoughts are taking 15k off of each of our salaries and giving them to our ASM. This would bring him from 55k to 85k which is pretty good for small town Iowa. He also has a company car and health benefits etc. This would allow us to keep a good income, and also pursue other careers.

    Our industry is somewhat questionable based on several things, and we could see a significant drop in profit over the next several years and we would adjust our draws based on this. We would be able to get weekly and monthly reporting to see trends etc and keep an eye on things, and would still remotely and randomly be on sight to talk with employees etc. If we saw things not working out we would be able to make changes whether it be staffing, marketing etc. If the ASM could not handle the job which is highly unlikely, we would be able to hire a replacement.

    My business partner mentioned the other day the he would be willing to take a 50k each cut in pay, and give our ASM the same pay raise to 85k, and put the remaining 70k into a fund annually so that our ASM could eventually use that money to "buy us out", which in my mind makes no sense....First of all, the cellular provider we are an agent for, does not have a contract with our ASM and does not guarantee us to be able to sell to another person...in fact they would probably just move another agent into our towns and our business would be valueless.

    I'm trying to be prepared for a conversation with my partner with some facts and wisdom.

    What would you do???

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    First, do you have something in writing from when you first went into business and does it cover how one or both of you would leave the business? If you have anything in writing, you likely have to do whatever is written. I'm guessing you don't have something like this covered, but I thought I'd ask.

    I'm with you on not understanding your partner's idea to put your money into a fund to buy you out. Since the cellular provider may or may not allow a sale, why not talking to them and ask them some questions. They'll probably have the best answers as far as what is and isn't allowed. They might even have thoughts about your exact scenario. They'll be able to tell you what you can and can't do better than we can.

    Aside from that, this sounds like something to work out with your partner. Seems like good business sense to start with your offer to give your ASM an extra $30k. Your ASM may or may not agree to your idea, but it seems like the right place to start. Again, I would call the cell company to find out what is and isn't allowed. Is the long term idea to let the ASM purchase the business? If so, you have to see if that's allowed. If not, then how will you eventually leave the business?

    I would definitely start by talking to the cell company and finding out what you can and can't do. Then I would talk to your partner and work something out that treats both of you and the ASM fairly. I'm not sure why you would give your ASM money to buy you out, but I would think you'd want to work out something where he has a path to take over, assuming it's allowed by the cell company.

    Hope something in there helps.
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    Wow! That makes no sense at all. Giving an employee money to buy you out? Just keep the money in the first place.

    Your business seems pretty solid, for now anyway. Might make more sense to do an employee stock ownership type deal. See if a bank will finance a “buyout” for the employee. It will be paid back out of revenue. Once the loan is paid he owns the company. You get cash up front in lieu of continuing salary, then there is plenty of profit to pay back the loan.

    If between you both you are drawing $ 350,000 I would think a fair price would be around 1 to 2 million. Regardless of the final price $ 350,000 a year can liquidate a pretty substantial loan.

    You could do a simpler deal, just let him accumulate equity over time, with some future date where your salaries end or decrease.

    I just don’t see the logic of paying him so that he can pay you. It’s like buying yourself out. It’s like giving it away. Am I missing something?

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    Thank you for your replies. I do know that the cell company will not give us solid answers. "it all depends"... on what? well, that's for them to decide when and if the time comes. I do know that they feel comfortable with a "productive and effective" ASM basically running the show, but they do like to see the principal officers involved in owner/management meetings from time to time which we would have no problem being a part of. We would still be getting regular reports and be in on all communications as we are now. We would just be physically less available.
    I think that by offering our current ASM a significant raise, he would see that his job is a little more marketable, and he would even push harder to produce profit...and he knows from the past, that "we take care of those who take care of us". He likes money and vacation time. I get that. That's how we motivate him.
    I will have to look into the financing a buyout idea. This "may" be what my biz partner was circling around. We do have a buy/sell agreement based on an insurance policy that if one of us dies, there is a plan of action.
    I'm just trying to come up with a solid idea or two to present to him so that we can begin to get our final escape plan together.

    Keep the ideas and questions coming!

    Blessings.

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