Good morning all, Does anyone have any experience in bringing on a business partner? What is the common or excepted way to do it? Does the partner bring X amount of dollars to the table? My accountant said that they should have to bring X amount to the table to “buy in”. He explained that the contacts and business relationships, reputation, and other intangibles that I have developed over the past 6 years are worth a price. Would it be based on the average yearly business profits? Any opinions would be appreciated. Thanks
Why do you want a partner?
Don’t get me wrong, I have over 30 partners in almost as many businesses, so I’m not against having partners. But why do you want one?
Here is my thinking: If you and your partners are losing money, you’ll hate each other. If you are making money, you’ll be French kissing each other.
Anyway, if you can explain why you want a partner or why you want this particular partner, I’ll give you some excellent advice about how to bring him in.
Normally the selling price of a business is based upon the rate of return on investment. There are formulas that investors use for this calc. Essentially you are selling a portion of the business when you take on a partner since you will be sharing the profits (and liabilities). However, your partner may be contributing to the business through some inherent means such as a license or experience in a field that you do not currently have. This would lead to increased revenues that you will be sharing. It is difficult to evaluate and give sound advice without being privy to financials and profit/loss statements. However, if your business has equipment and/or assets, those should certainly be accounted for and equitable compensation paid. Your established business and good name do have value, but may be offset to some degree by the value that your new partner brings to the table. I’m sure Nick can give you some more detailed advice if you describe the partnership in a little more detail.
Thanks for the replys, the reason for me taking on a partner is because I am a very active Military reservist and go away for duty many times per year for various lengths of time. I was hoping for someone to give me some numbers or percentages. For example, if all things being equal, licenses, experience, etc. Would the partner bring 25% of the yearly profits to the table for every year that I have been in business? or say 50% of what the business is currently worth or has brought in over the year? Thanks for all and any advice!
If you are single (solo) inspection company then you will find that outside of equipment a home inspection company will have very little value. Most of the value in a solo inspection company is with the individual person and their contacts.
I agree with Scott.
Good will does not really apply to the home inspection business. Unlike a retail store or hair salon, where repeat business and walk-ins are the staples of consumerism, a home inspection is something that happens relatively infrequently for individuals.
Also, be careful that your partner does not develop relationships with the folks you do business with, then decide the partnership ain’t working out…
The relationships that you have developed is probably where the value lies. If your partner will benefit from having a constant referral basis, then you should be compensated some how. You might try and receive a percentage of the jobs that he performs – faded out over a period of time, say two years. That would give you some compensation, and yet allow him to pay in as a function of earnings. Maybe something like 10-12% — The more lucrative your business is, the higher percentage rate you could request. In otherwords, if he will be making money hand over fist, he may not be as concerned with the amount that gets taken. Just a thought.
Hire an employee.
Partners from what almost everyone I know that has had them are a pain in the a s s.
I have been fortunate enough to learn and listen to those who have made the mistake before.
Why not form some sort of off the books partnership with anothe inspector so when you are away you have your number go to him/her for inspections? When he/she needs assistance when they are away for periods of time, or has excess work he can call upon you or forward his number. This works for me as the inspector I utilize, as we have agreed upon price sharing for each inspection either one of us does.
Neither one of us markets to the others Realtor or the client. The hard part is finding someone who will join in this relationship. It is a gentlemans agreement and things have worked out for both of us.
In my opinion, a partner is not needed.
Problem with that is that if you are not around to supervise their activities, chances are you will have problems. When someone has a vested interest in the business relationship they tend to act in its best interest.
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It is a gentlemans agreement and things have worked out for both of us.
A great many out there are not true gentlemen or men of their words.
It is also a great way to lose a good friend.
The main problems seem to stem from differences in work ethics and one partner not truly pulling their own weight or the other partner just feeling that way.
If you do take on a partner be sure to give us occasional updates.
I wish you luck but I feel it is best to be the boss and not have answer to another person. It is better to deligate responsibilities instead of discussing them.
Nothing wrong with your idea. I believe I already have a few Friends that I could call upon to cover my jobs if I were away but that seems a lot less than a true partnership. Friends in the same business are good to have for a ton of reasons.
Michael, Speak to Nick and as many people as you can. I have been involved in a 2 partnerships . Historically they don’t last. Everyone’s reply here has merit. The best one I was involved in was with a friend I met while working. We did our own thing no contract together and worked separately till we needed each other. Very unusual, we worked totally on trust and a handshake . We are friends 25 years later.The second one we had a 5 year contract together 3 were great 1 was bad and the last 6 months we were counting the days. If you do form one write a divorce agreement and keep the majority at all cost. If you would like to discuss this PM me. Good luck
The question that has to be answered is: Why do you want a partner or this particular partner? Until you can answer that question, I can’t help.
I believe that he answered at least part of the question earlier
“the reason for me taking on a partner is because I am a very active Military reservist and go away for duty many times per year for various lengths of time.”
Ah. That is a good reason IMHO. Basically, there is no reason to partner with someone who is like you, who thinks like you, and who has the same skill set as you. In this case, a partner with a looser schedule, makes sense.
I’ll take a shot at predicting the problem: Michael goes off to do his Reserve duty and the partner, working and running things by himself, begins to view Michael as part-time help.
You guys can cure this problem of unbalanced effort with a simple formula:
Each partner’s take for a certain time period (you can payout every month if you like) equal (=) # of hours that partner worked for the business during that period (in hours) divided (/) by the total # of hours that both partners worked for the business during that period times by (X) (the gross revenue minus (-) operating expenses and reimbursements for receipts).
The only issue the formula doesn’t address is when a capital purchase (new copier or printer) is made during a time period of unbalanced effort. The harder-working partner during that time period suffers most of the cost. To fix this issue, I recommend the cost of capital purchases not be included in expenses during that time period, but instead be split between the partners after payouts.
With inspections, its all about how many inspections the new guy will do that came from your resources (contacts and advertising). Don’t agree to pay anyone based on hours, they will bankrupt you.
I am assuming he has an inspection business too? Then you should get his overflow work or when he is on vacation etc in return for him doing your work whie you are away.
Who’s insurance is at play here?
Who’s inspection agreement will be used?
You can’t “sell” an inspection to another inspector for very much because the end result profit may end up being too low for him to have any desire to do a good job, especially if the liability is all on you.
It sounds like you just need to help each other with referrals and maybe a little advertising expense adjustment if you spend a lot on advertising to get those jobs you will be sending him.
You do not want a partner or an employee in this business unless it is absolutely necessary. It is not necessary unless you are getting around 15 calls a week and actually doing 10+ inspections.
If you are assuming that all things are equal, then the partner is probably already bringing as much to the table as you are. If the partner has similar experience, business assets and business volume then the two of you should buy into the partnership equally. If there is an imbalance, then the two of you would need to find an agreeable amount to adjust on one side or the other. I assume that both of you would be producing revenue (i.e., performing inspections yourselves) or would you have employees/subs performing the actual inspections? This may affect how you decide to share revenue, whether by hours worked or as percentage of each paid inspection performed, etc. Also, be careful how you manage your liability in the relationship.
Thanks to All for the replies ! I will take the advice and recommendations and let everyone know how it turns out.