Partnership buyouts are common for small businesses. Often the equity partners are no longer aligned or one of the business partners is looking to retire. These business buyouts can cause disagreements if not handled thoughtfully. Here are some tips for the successful financing of a partnership buyout.
One of the most important details to settle on for a smooth partner buyout is the valuation of the business. We’ve developed this guide to help you understand the particulars of small business valuation. Alternatively, many firms ask a 3rd party valuation firm to run an analysis for them – but this is a bit more pricey – often costing thousands of dollars.
While valuations may not always be settled, the ultimate constraint is usually the funding. Regardless of how much a business is worth, funding for the partnership buyout can be tough to find. We’ve been in the funding business for more than 10 years and have partnered with a number of creative buyout financiers who can help.
Structure the Deal
Getting the deal structure right is critical. Common arrangements include buyouts over time, earnouts, or equity buyouts with a new partner coming in. Often, it’s advisable to have a clean-break, as partners looking to separate can often find more to disagree about in the break-up.
Structure the deal so that it is clean and well defined, so both parties can move on. Make sure all your basics are covered legally. Often this includes a financing agreement, consideration for a non-compete, and a partnership release.
Fund the Partnership Buyout
The most common way to fund a business partner buyout is by securing a loan. In fact, there may be government support programs in place to help facilitate the deal. EquityNet has partnered with the leaders in this space who can help best fund your partnership buyout.
Fill us in on the details and we can get started helping you with your options.