Progressive Partnership Buisness Buyouts

Do you want to sell your business and maximise the return on your sale? Do you want to have someone else in the business helping run it and taking some of the risk? Have you thought about a staged buyout of your business where a business partner progressively buys you out over a set number of years, say 2-5 years? Then a progressive partnership buyout might be the answer.

What are the advantages to selling your business this way?

1. Assuming you still want to be active in the business, you don’t have to retire or completely walk away from your business immediately.

2. You will get an immediate cash injection when the new partner starts.

3. Some of the business risk is transferred to the new partner.

4. The business will benefit from the new skills the business partner brings.

5. Assuming your business is working on a strategic growth plan and this growth is progressing, then you reap the rewards of this growth further down the track with a higher sale value for your business and a guaranteed buyer. Equally your new business partner is buying a better and more valuable business.

6. Finally, because the ownership duties are now shared you no longer have to work those long hours.

What are the disadvantages to selling your business this way?

1. You don’t get the full sale price upfront.

2. The risk of choosing the wrong business partner. If you don’t get on and clash this is a disaster for the business and will end up being a major headache, however there are ways around this that we will explain later.

What are the steps to a progressive partnership buy out. We would suggest something along the lines of the following:

A. Get an updated valuation of your business. From this decide how much of the business you want to sell off in the first year and then for the subsequent years. e.g. 25% for year 1, then 25% each year for the next 3 years.

B. With your accountant or lawyer decide on the formula that will be used to value the business in the subsequent years of the buy-out agreement.

C. Have your lawyer draw up a confidentiality and due diligence agreement.

D. Have a sale and purchase agreement drawn up including the agreed progressive buyout formula over the term of the agreement.

E. Find a potential buyout partner which is probably going to be the hardest part of the process.

F. Once a partner is found set up a memorandum of understanding describing how disputes between partners will be handled. We recommend having an independent referee sitting in on your board meetings. The referee will have the final say in a dispute and help keep the business moving forward with its growth plan.

At Business Coach NZ Ltd we help facilitate the process of a progressive partnership buy out by:

a. Developing your strategic growth plan

b. Finding a buy-out partner

c. Acting as that independent referee on your board

d. Ensuring that the business continues to grow